India's Q3 GDP grows 7.8% under new series; manufacturing, consumption anchor expansion

The National Statistics Office (NSO), which simultaneously released a new GDP series with 2022-23 as the base year, said the economy’s performance in FY26 continues to be supported by industrial activity and services-led consumption trends

India’s economic momentum moderated slightly but remained resilient in the December quarter, with stronger manufacturing activity and steady consumption helping the economy grow 7.8 percent year-on-year in Q3FY26, according to GDP data released by the government on February 27.

The latest numbers mark a slowdown from the 8.4 percent expansion recorded in the previous quarter, but underline continued strength in domestic demand even amid global uncertainty and uneven sectoral performance.

The National Statistics Office (NSO), which simultaneously released a new GDP series with 2022-23 as the base year, said the economy’s performance in FY26 continues to be supported by industrial activity and services-led consumption trends.

Manufacturing regains growth leadership

Industrial activity emerged as a key driver of growth during the quarter. Manufacturing output expanded at a double-digit pace of over 13 percent.

According to the official release, the secondary sector — comprising manufacturing, construction and utilities — recorded robust growth, reinforcing its role as a backbone of the current expansion cycle.

Construction activity slowed sharply to 6.6 percent from 8.7 percent earlier.

On the demand side, private consumption continued to anchor growth. Government data showed private final consumption expenditure (PFCE) expanding at a healthy pace, signalling resilient household demand despite inflationary pressures earlier in the year.

Services activity — particularly trade, transport, communication and hospitality — also posted strong growth, pointing to sustained urban demand and travel-related spending.

On GDP data, MoSPI's Saurabh Garg said, "As economies mature, impact of base year revisions decreases."

Reacting to the development, Aditi Nayar of ICRA said, “As per the dataset on the new 2022-23 series released by the NSO, India’s real GDP growth is estimated to have eased to 7.8% in Q3 FY2026 from 8.4% in Q2 FY2026, although both numbers are healthier than what we had expected. The moderation was expectedly driven by the agriculture and the non-manufacturing industrial sectors, including mining, electricity and construction segments. Encouragingly, manufacturing GVA expanded by double digits for the fifth consecutive quarter in a row in Q3 FY2026, while services GVA growth also inched up to a 7-quarter high of 9.5% from 9.3% in the previous quarter.”

Nayar further said, “The Second Advance Estimate (SAE) for GDP for FY2026 has been pegged to expand by a robust 7.6% in FY2026, up from 7.1% in FY2025, with the manufacturing and services segments on the production side and the PFCE and GFCF on the expenditure side, expected to witness an improvement in their growth rates between these years. Given this, and the trends in 9M FY2026, the GDP growth is implicitly pegged to decelerate to a 3-quarter low of 7.3% in Q4 FY2026, which is nonetheless quite healthy.”

She added, “The data for FY2023-25 has been revised materially as per the new 2022-23 base. Notably, the size of the Indian economy is estimated to be somewhat smaller than that as per the 2011-12 base; the nominal GDP for FY2024 and FY2025 is 3.8% each lower than that estimated in the old series, while the SAE for FY2026 is 3.3% lower than the FAE as per the old series. This implies that the fiscal deficit-to-GDP ratio would be ~15-20 bps higher on an average during these years as compared to the previous estimates. More importantly, this would also imply a fiscal deficit target of 4.46% of GDP for FY2027, as against the 4.3% assumed in the budget, assuming a nominal GDP growth of ~10% in the fiscal.”

ICRA’s Chief Economist also said, “further, this would also have some bearing on the debt consolidation roadmap, with the debt-to-GDP pegged 1.9pp higher at 57.5% for FY2027 as against the budgeted target of 55.6%, making the consolidation path unto FY2031 relatively steeper than previously estimated.