India’s economy may have expanded at a robust 7.6 per cent in FY26, but the Second Advance Estimates reveal a growth story that remains decidedly uneven, with agriculture continuing to lag even as manufacturing and services surge. The data underline a persistent fault line: headline GDP growth is strengthening, but the farm economy — and by extension rural demand — is not keeping pace.
Figures released by the Government of India through the Ministry of Statistics and Programme Implementation (MoSPI) and the National Statistics Office (NSO) show that agriculture, livestock, forestry and fishing grew just 2.4 per cent in real terms in FY26, barely one-third the pace of overall GDP growth and well below the expansion recorded by manufacturing and services .
Q3 exposes the 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 as a whole grew 7.8 per cent, agricultural growth slowed to around 1.4 per cent, sharply limiting the rural contribution to festive-season demand .
This contrast matters because agriculture still supports over 40 per cent of India’s workforce, even though its share in GDP has steadily declined. Sub-2 per cent quarterly growth in the farm sector during peak consumption months implies minimal real income gains for rural households, constraining demand for mass-market goods and services.
Full-year numbers point to structural weakness
For FY26 as a whole, agriculture’s 2.4 per cent growth stands out not just for its weakness, but for its persistence. In comparison:
- Manufacturing expanded 11.5 per cent
- Services grew 9.0 per cent
- Overall GVA rose 7.7 per cent
The gap between agricultural growth and the rest of the economy has now widened for a second consecutive year under the revised GDP series. Even after adjusting for weather variability and crop cycles, economists note that farm output growth remains barely above population growth, implying stagnant per capita farm incomes.
While officials have pointed to the possibility of upward revisions once rabi output estimates are finalised, the broader trend suggests that agriculture has ceased to act as a stabilising force during high-growth phases.
Consumption grows — but not from farms
Private Final Consumption Expenditure (PFCE) rose 7.7 per cent in FY26, signalling a recovery in household spending. However, the composition of that consumption appears increasingly urban-centric.
Under the new GDP series, consumption now accounts for 56.7 per cent of GDP, down from the higher shares recorded in earlier base years. Analysts argue that this reflects weaker income growth in agriculture and informal employment, even as salaried urban households benefit from services-sector growth and easier credit conditions.
The result is a consumption recovery that exists in aggregate, but fails to penetrate rural India, limiting its ability to sustain broad-based demand growth.
New GDP series sharpens the contrast
The rebasing of GDP to 2022–23 has further sharpened these contrasts. Under the revised framework, Gross Fixed Capital Formation has risen to 31.7 per cent of GDP, underscoring the increasing importance of investment-led growth.
While higher investment is positive for long-term capacity creation, the data suggest that capital formation is racing ahead of farm income growth, raising concerns about demand sustainability. Historically, periods of strong investment unaccompanied by rural income growth have tended to produce uneven recoveries.
Manufacturing and services take centre stage
Beyond agriculture, the FY26 estimates point to a decisive shift in growth drivers.
Manufacturing emerged as the standout performer, expanding 11.5 per cent, with output growth remaining in double digits for much of the year. Construction, by contrast, slowed to 7.1 per cent, reflecting weaker momentum in affordable housing and labour-intensive activity — a development that has direct implications for rural and migrant employment.
Services continued to provide stability, growing 9 per cent, led by trade, transport, finance and real estate. However, public administration and defence recorded slower growth, possibly reflecting subdued state-level spending — a factor that traditionally supports rural demand through welfare and capital outlays.
Why farm growth still matters
Although agriculture’s share in GDP has declined, its macroeconomic relevance remains significant. Weak farm growth:
- Limits rural consumption
- Reduces demand for entry-level manufactured goods
- Increases dependence on public investment and urban services
- Amplifies regional and income disparities
The FY26 data show that strong headline growth can coexist with persistent rural stagnation, but such a configuration risks becoming unstable over time.
What this means for FY27
Looking ahead to FY27, most forecasts place GDP growth in the 7–7.5 per cent range. However, the durability of that growth will depend critically on whether agriculture rebounds meaningfully.
Even a 1–1.5 percentage point acceleration in farm growth could have a disproportionate impact on rural incomes and consumption. Conversely, another year of sub-3 per cent agricultural growth would keep demand narrow and growth heavily dependent on manufacturing and services.
The bottom line
The Second Advance Estimates confirm that India’s economy is growing strongly — but not evenly. Agriculture remains the weakest link in the growth chain, limiting the reach and resilience of the expansion.
As the economy moves into FY27, the challenge is no longer simply to grow faster, but to ensure that farm incomes and rural demand re-enter the growth equation. Without that, India risks sustaining high GDP growth that remains urban-led, capital-heavy, and fragile at the base.