India's economy is projected to grow at 7.6% in fiscal year 2026, according to the latest SBI Research Ecowrap report. This revised forecast follows a robust 8.2% expansion in Q2 FY26, the highest in six quarters, driven by strong performances in manufacturing, construction, and services.
Key Drivers of Growth
The Ecowrap report emphasizes that domestic demand and strong performance across the manufacturing and services sectors are the primary factors propelling this growth. A previous Ecowrap report in November pointed to strong investment activity, recovery in rural demand, and the impact of GST rationalization as key contributors to the Q2 FY26 growth of 7.5%. This growth is further underpinned by structural reforms that have strengthened demand conditions.
Q2 FY26 GDP Surge
Data released by the Ministry of Statistics and Programme Implementation (MoSPI) confirms the 8.2% GDP growth in Q2 FY26, a significant jump from the 5.6% recorded in the same period last year. This figure has surpassed initial estimates and reflects the "hard work and enterprise of our people," according to Prime Minister Modi.
MSME Credit Growth
The SBI Research Ecowrap report also anticipates that Micro, Small, and Medium Enterprises (MSME) credit is set to cross Rs 6 lakh crore.
Impact of Global Factors and Export Diversification
Despite a potential slowdown in the United States and global market volatility, India is actively diversifying its export destinations. Total merchandise exports saw a 2.9% year-on-year increase, reaching USD 220 billion in the April-September period of FY26. While exports to the U.S. grew by 13% to USD 45 billion during this period, the share of the U.S. in India's exports has been declining since July 2025. This diversification is crucial for offsetting weakening demand from specific regions.
Current Account Deficit
India's current account deficit (CAD) narrowed to 0.2% of GDP in Q1 FY26, compared to 0.9% in the same quarter of the previous year, bolstered by stronger services exports and private remittances. SBI Research anticipates the deficit to widen in Q2 and Q3 before turning positive in Q4, projecting an overall CAD of 1.0-1.3% of GDP for FY26.
Textile Sector Growth
India's textile exports have demonstrated growth across 111 countries, highlighting the sector's increasing global competitiveness. The technical textiles market is expected to expand significantly, reaching $123 billion by 2035, driven by applications in various sectors.
Previous GDP Growth Projections
It is worth noting that SBI Research had previously projected a lower GDP growth of 6.3% for FY26, below the Reserve Bank of India's (RBI) estimate of 6.5%. This earlier projection cited concerns regarding weak private capital expenditure, slower credit growth, and potential impacts from US tariffs. However, the current revised forecast reflects a more optimistic outlook based on recent economic performance.
