India's economy ended FY26 on a strong note, with provisional estimates showing GDP growth of 7.7%, slightly higher than the government's earlier estimate of 7.6%. However, global brokerage Citi believes multiple headwinds could slow growth in FY27 and has retained its real GDP growth forecast of 6.6%.
According to Citi, the strong fourth-quarter performance was driven by continued resilience in the services sector, which offset weakness in manufacturing. The brokerage noted that the decline in real consumption growth during Q4 FY26 may indicate renewed pressure on urban demand, even as overall economic activity remained robust.
Citi said the stronger-than-expected GDP data and resilience in high-frequency indicators could make the Reserve Bank of India less concerned about maintaining its current policy stance. The brokerage added that if inflationary pressures emerge rapidly, the central bank may be more comfortable responding due to the economy's demonstrated strength. The firm noted that the positive GDP surprise could make the RBI less worried about embarking on an early rate hike should inflation risks materialise quickly.
The FY26 GDP data showed encouraging trends in consumption and investment. Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) both recorded faster growth than in the previous year, indicating improved household spending and investment activity. Several manufacturing and services segments also delivered double-digit growth despite operating on a relatively high base.
The provisional estimates also suggest that March 2026, the first full month following the escalation of the West Asia conflict, did not witness a significant enough economic impact to derail full-year growth. The data highlighted strong performances across manufacturing and services sectors, reflecting the economy's resilience heading into a period of potential supply-side disruptions.
However, concerns remain around agriculture. The sector grew just 3% in FY26, down from 4.2% in FY25, despite a favourable monsoon that was 108% of the long-period average. With forecasts indicating a weaker monsoon at 90% of the long-period average this year and concerns around fertilizer supply constraints, agriculture could face additional pressure in FY27.
The data also highlighted the growing dominance of the services sector, whose share in gross value added (GVA) increased to 54.3% in FY26 from 51.9% in FY23. Meanwhile, agriculture's share fell below 20% from 22.1% in FY23, while manufacturing's contribution remained largely unchanged, raising concerns about the pace of India's industrial expansion and value-added manufacturing growth.
Looking ahead, Citi expects uncertainty surrounding the Iran conflict, elevated energy prices, weather-related risks, and potential El Niño conditions to weigh on economic activity. Both the RBI and government officials have indicated that growth is likely to moderate in FY27, with the central bank projecting GDP growth of 6.6%.
The coming year is expected to test India's economic resilience as policymakers navigate energy supply disruptions, inflation risks, climate-related uncertainties, and global geopolitical challenges while attempting to sustain growth momentum.
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