January 8, 2026 03:10 PM IST First published on: Jan 8, 2026 at 03:10 PM ISTWritten by Rahul AgrawalIndia’s GDP growth is estimated to accelerate to a robust 7.4 per cent in 2025-26 from 6.5 per cent the year before, as per the First Advance Estimates (FAE). Coming on the back of an 8 per cent expansion in the first half, this implies that the National Statistical Office (NSO) has implicitly pegged growth to moderate to 6.9 per cent in the second half of the year. These projections are in line with ICRA’s forecasts, notwithstanding some minor variations in the sectoral estimates.AdvertisementThe slowdown in GDP growth in the second half is due to several factors. The Union government has frontloaded its capex in the ongoing fiscal, expanding by 40 per cent in the first half of the year. This implies that a 15 per cent contraction is needed in the second half to remain within the budgeted target. The GoI’s capex has already declined by 21 per cent during October-November 2025. Even if the allocation is enhanced somewhat over the budgeted amount, it will only lead to a narrower contraction in the second half, weighing upon growth during this period.While there is a lot of headroom available, we expect the government to pare its non-interest non-subsidy revenue expenditure to accommodate the potential sizeable shortfall in tax collections, in order to avoid a fiscal slippage. This expenditure cut would also lead to softer growth in this head during December-March FY2026.Additionally, the adverse impact of US tariffs and penalties would also constrain merchandise export growth across several sectors, after some upfronting seen in the first half. Also, an unfavourable base will impact GDP growth to some extent.There are some sectoral anomalies visible in the implicit second-half numbers assumed by the NSO, given that the first advance estimates are computed by extrapolating data that is available up to October-November. However, a detailed discussion on these has limited utility at the current juncture, as this is the last GDP release based on the 2011-12 series.AdvertisementThe third quarter data and the Second Advance Estimate (SAE) for FY2026, which will be released at the end of February, will be based on the new GDP series (base year: 2022-23). There could possibly be material revisions in the absolute GDP and growth numbers for FY2024-2026, and consequently, ratios based on nominal GDP such as the fiscal deficit, debt, household savings and others.Nevertheless, the first advance estimates will be used in the upcoming Union Budget. The NSO has pegged the nominal GDP growth for 2025-26 at 8 per cent, lower than ICRA’s estimate of 8.5 per cent. However, in absolute terms, the advance estimates for nominal GDP this year (at Rs 357.1 trillion) are only slightly higher than the Rs 357.0 trillion assumed in the Union Budget. Based on this, the government’s absolute budgeted fiscal deficit of Rs 15.7 trillion translates to 4.39 per cent of GDP, marginally lower than the FY2026 budget estimate of 4.4 per cent. ICRA does not expect a fiscal slippage over the targeted 4.4 per cent of GDP, as higher-than-budgeted non-tax revenues and likely expenditure savings are expected to provide a buffer against the projected miss on net tax revenues.The writer is senior economist, ICRA