India's economy recorded its strongest growth performance in four years during FY26, with real Gross Domestic Product (GDP) expanding 7.7% year-on-year and real Gross Value Added (GVA) rising 7.9%, according to a report by SBI Capital Markets. The report highlighted broad-based economic expansion across key sectors despite global uncertainties and domestic challenges during the fiscal year.

Key Highlights

• India’s economy expanded 7.7% in FY26, driven by services, manufacturing, investment and consumption growth.
• SBI Caps expects FY27 growth moderation amid global uncertainties, trade risks and monsoon concerns.

The latest assessment showed that real GDP growth was revised upward by 10 basis points from the Second Advance Estimates, while real GVA growth was revised higher by 20 basis points, reflecting stronger-than-expected economic activity.

Services Sector Leads Economic Expansion

The services sector emerged as the primary engine of growth in FY26, registering a robust 9.3% increase in real GVA, up significantly from the previous year. Strong performance in trade, hotels, transportation, financial services, and real estate contributed to the sector's momentum.

Trade, hotels, and related services witnessed an 11% growth rate, supported by improving consumer demand and a low base effect. Financial services and real estate also maintained healthy growth, aided by strong profitability in the banking sector and continued economic activity.

Manufacturing and Construction Provide Strong Support

India's secondary sector expanded 8.8% during FY26, driven by a revival in manufacturing activity and sustained growth in construction. The report noted that strong industrial output and infrastructure development helped offset weaker growth in utilities, where subdued power demand impacted performance.

Meanwhile, the primary sector experienced slower growth due to moderation in agricultural output and lower mining activity.

Also Read: SBI Eyes 25% GDP Share by 2030 with Aggressive Expansion

Investment and Consumption Strengthen

According to SBI Caps, government capital expenditure and GST rationalisation measures played a crucial role in supporting economic growth.

Gross Fixed Capital Formation (GFCF), a key indicator of investment activity, increased 8.2% during FY26. Investment momentum strengthened considerably in the final quarter, with GFCF rising 10.8%, indicating renewed confidence in the economy.

Private Final Consumption Expenditure (PFCE) also accelerated, growing 7.7% during the fiscal year. The report attributed the improvement to lower tax burdens through GST rationalisation and stronger consumer spending, particularly in the automobile sector during the second half of FY26.

Strong Fourth-Quarter Performance

India's economy expanded 7.8% year-on-year during the January-March quarter, helping conclude the fiscal year on a strong note.

The services sector remained the biggest contributor, recording 9.9% growth during the quarter. Financial services, real estate, trade, and hospitality segments posted double-digit growth rates.

Manufacturing growth moderated to 7.3% in the fourth quarter due to temporary disruptions in industries dependent on natural gas supplies. However, SBI Caps noted that the sector's underlying fundamentals remain strong and could improve as supply conditions normalise.

FY27 Outlook Remains Cautiously Positive

Looking ahead, the report expects economic growth to moderate in FY27 amid global trade uncertainties, geopolitical risks, and potential weather-related challenges. Concerns over below-normal monsoon conditions could weigh on rural demand and agricultural output.

However, rising inflation is expected to support nominal GDP growth, providing the government with greater fiscal flexibility to sustain investment and welfare spending. While high-frequency indicators continue to show resilience, SBI Caps believes matching FY26's exceptional growth performance may be more challenging in the coming fiscal year.