India’s GDP is set to grow 7.6 percent in fiscal 2026, but the second advance estimate shows the recovery remains uneven. While manufacturing and services expanded strongly, agriculture grew by only 2.4 percent, highlighting persistent rural weakness.
India’s economy may expand with a strong growth of 7.6 per cent in FY2026, but the second advance estimate reveals a growth story that remains decidedly uneven, with agriculture continuing to lag despite growth in manufacturing and services. The data outlines a persistent fault line: headline GDP growth is strengthening, but the agricultural economy – and by extension rural demand – is not keeping pace.
Data released by the Government of India through the Ministry of Statistics and Program Implementation (MoSPI) and the National Statistical Office (NSO) show that agriculture, livestock, forestry and fishing grew by only 2.4 per cent in real terms in FY26, barely a third of the pace of overall GDP growth and well below the expansion recorded by manufacturing and services.
Q3 highlights rural-urban divide
The divergence was particularly visible in the October-December quarter (Q3 FY26), traditionally the most consumption-sensitive period of the year. While the economy grew 7.8 percent overall, agricultural growth slowed to about 1.4 percent, sharply limiting the rural contribution to festival season demand.
This paradox matters because agriculture still supports more than 40 percent of India’s workforce, even as its share in GDP has steadily declined. Quarterly growth of less than 2 percent in the agricultural sector during peak consumption months means minimal real income gains for rural households, leading to reduced demand for mass-market goods and services.
Full year data points to structural weakness
For FY26 as a whole, agriculture’s 2.4 per cent growth is notable not only for its weakness but also for its solidity. In comparison:
- Manufacturing expanded by 11.5 percent
- Services grew by 9.0 percent
- Overall GVA increased by 7.7 percent
The gap between agricultural growth and the rest of the economy under the revised GDP series has now widened for the second consecutive year. Even after adjusting for weather variability and crop cycles, economists note that agricultural production growth remains barely above population growth, meaning per capita agricultural income is stagnant.
While officials have pointed to the possibility of an upward revision once Rabi production estimates are finalised, the broader trend suggests that agriculture has ceased to act as a stabilizing force during high growth phases.
Consumption rises – but not from farms
Private final consumption expenditure (PFCE) increased by 7.7 per cent in FY26, indicating an improvement in household spending. However, the structure of that consumption appears increasingly urban-centric.
Under the new GDP series, consumption now accounts for 56.7 percent of GDP, down from the higher shares recorded in earlier base years. Analysts argue that this reflects weak income growth in agriculture and informal employment, even as salaried urban households benefit from service-sector growth and easy credit conditions.
The result is a recovery in consumption that is present overall, but fails to penetrate into rural India, limiting the ability to sustain broad-based demand growth.
New GDP series raises paradox
The resetting of GDP for 2022-23 has further intensified these contradictions. Under the revised framework, gross fixed capital formation has increased to 31.7 percent of GDP, underscoring the growing importance of investment-led growth.
While higher investment is positive for long-term capacity building, data shows that capital formation is outpacing farm income growth, raising concerns about demand sustainability. Historically, periods of strong investment coupled with rural income growth have produced uneven recoveries.
Manufacturing and services take center stage
Beyond agriculture, FY26 estimates point to a decisive shift in growth drivers.
Manufacturing emerged as the standout performer with growth of 11.5 per cent, while output growth remained in double digits for most of the year. In contrast, construction slowed to 7.1 percent, reflecting weak momentum in affordable housing and labor-intensive activity – a development that has direct implications for rural and migrant employment.
Services continued to provide stability with growth of 9 per cent, led by trade, transport, finance and real estate. However, public administration and defense recorded slower growth, possibly reflecting a decline in state-level spending – a factor that traditionally supports rural demand through welfare and capital outlays.
Why does agricultural development still matter?
Although the share of agriculture in GDP has declined, its macroeconomic relevance remains important. Weak Agricultural Development:
- limits rural consumption
- Demand for entry-level manufactured goods decreases
- Dependence on public investment and urban services increases
- increases regional and income disparities
FY26 data suggests that strong headline growth can coexist with persistent rural stability, but such a configuration risks becoming unsustainable over time.
What does this mean for FY27
Looking at FY27, most forecasts put GDP growth in the range of 7-7.5 per cent. However, the sustainability of that growth will critically depend on whether agriculture revives meaningfully.
Even a 1-1.5 percentage point pickup in agricultural growth could have a disproportionate impact on rural incomes and consumption. Conversely, another year of agricultural growth below 3 percent will keep demand limited and growth will remain heavily dependent on manufacturing and services.
bottom line
The second advance estimate confirms that India’s economy is growing strongly – but not uniformly. Agriculture remains the weakest link in the development chain, limiting the reach and flexibility of extension.
As the economy enters FY27, the challenge is no longer just to grow faster, but to ensure that farm incomes and rural demand re-enter the growth equation. Without this, India risks maintaining high GDP growth that remains urban-led, capital-heavy and fragile at base.
