India's Q3 GDP Growth Rises 7.8% Year-Over-Year Under Revised Series

India's GDP Growth Moderates to 7.8% in Q3FY26

The Indian economy showed resilience in the December quarter, with a 7.8% year-on-year growth in Q3FY26, according to the latest GDP data released by the government on February 27. This marks a slowdown from the 8.4% expansion recorded in the previous quarter, but underlines continued strength in domestic demand despite global uncertainty and uneven sectoral performance.

Manufacturing Regains Growth Leadership

Industrial activity emerged as a key driver of growth during the quarter, with manufacturing output expanding at a double-digit pace of 13.1%. The secondary sector, comprising manufacturing, construction, and utilities, recorded robust growth, reinforcing its role as a backbone of the current expansion cycle. However, construction activity slowed sharply to 6.6% from 8.7% earlier.

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Domestic Demand Remains Resilient

Private consumption continued to anchor growth, with private final consumption expenditure (PFCE) expanding at a healthy pace. Services activity, particularly trade, transport, communication, and hospitality, also posted strong growth, pointing to sustained urban demand and travel-related spending.

GDP Growth Projections

According to ICRA, India's real GDP growth is estimated to have eased to 7.8% in Q3 FY2026 from 8.4% in Q2 FY2026. The moderation was driven by the agriculture and non-manufacturing industrial sectors, including mining, electricity, and construction segments. Encouragingly, manufacturing GVA expanded by double digits for the fifth consecutive quarter, while services GVA growth inched up to a 9.5% high.

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Fiscal Deficit and Debt Consolidation

The revised GDP series with 2022-23 as the base year has led to a material revision in the data for FY2023-25. The size of the Indian economy is estimated to be smaller than the previous estimates, with the nominal GDP for FY2024 and FY2025 3.8% and 3.8% lower, respectively. This implies a fiscal deficit-to-GDP ratio 15-20 bps higher on an average during these years. Further, this would also imply a fiscal deficit target of 4.46% of GDP for FY2027, as against the 4.3% assumed in the budget.