RBI Annual Report FY 2025-26: Real Economy — GDP, Consumption, Investment, Agriculture, Industry, Services & Employment

The RBI Annual Report FY 2025-26 presents a detailed picture of India’s real economy and shows that economic activity remained resilient despite heightened global uncertainty and external shocks. Real GDP growth accelerated to 7.6% in 2025-26 from 7.1% in 2024-25, supported principally by private consumption and fixed investment on the demand side, and by services and industrial activity on the supply side.

For RBI Grade B, UPSC, IBPS, banking examinations, regulatory examinations, interviews and other competitive exams, this section is particularly important because it connects headline GDP growth with the underlying engines of the economy.

Instead of memorising only 7.6%, an aspirant should understand:

Who spent? Who invested? Which sectors produced? What happened to agriculture? Did manufacturing revive? Did services remain dominant? And what happened to employment?

That is the real story of India’s growth during 2025-26.

RBI Annual Report FY 2025-26: Understanding the Real Economy

The report divides the real economy into two broad perspectives:

Demand side

This tells us where economic spending came from.

The major components are:

Private Final Consumption Expenditure (PFCE)
Government Final Consumption Expenditure (GFCE)
Gross Capital Formation
Exports and imports

Supply side

This tells us which sectors produced economic output.

The major sectors are:

Agriculture and allied activities
Industry
Services

The distinction is extremely useful for examinations.

Demand side = expenditure

Supply side = production

India’s 2025-26 growth was broad enough to receive support from both sides, although the individual sectors performed differently.

India’s GDP Growth Accelerated to 7.6%

The headline number is clear:

Real GDP growth: 7.6% in 2025-26

This was higher than:

7.1% in 2024-25

The report notes that India continued to be the fastest-growing large economy, supported by robust macroeconomic fundamentals and proactive policy measures.

But the more important question is:

What drove the 7.6% GDP growth?

The answer is primarily:

Private consumption + fixed investment

The report states that these domestic drivers anchored GDP growth.

At the same time, the initial concerns about the impact of higher US tariffs on India were not reflected in a major drag on overall growth. Net exports exerted only a 0.1 percentage point drag on GDP growth during 2025-26.

Exam Point

2025-26 GDP growth = 7.6%

Main demand drivers = PFCE + Gross Fixed Capital Formation

Net exports = 0.1 percentage point drag

This is a high-probability area for RBI Grade B Phase 1, NABARD, SEBI, IBPS and other banking/regulatory exams.

Demand Side: Consumption Remained the Mainstay

Private consumption was the strongest component of aggregate demand.

Private Final Consumption Expenditure grew by:

7.7% in 2025-26

compared with:

5.8% in 2024-25

The report describes private consumption as the mainstay of aggregate demand.

This improvement was supported by:

steady rural consumption,
improving urban demand,
income-tax cuts,
and GST rationalisation.

Several high-frequency indicators also supported the consumption story, including:

tractor sales,
passenger vehicle sales,
declining rural and urban unemployment rates,
higher kharif output,
and steady personal-loan growth.

Why does consumption matter?

Consumption represents household demand for goods and services.

When consumption strengthens:

Household demand ↑ → business sales ↑ → production ↑ → investment incentives ↑ → employment/income effects ↑

This can create a positive growth cycle.

Therefore, the improvement in PFCE from 5.8% to 7.7% was an important reason why India’s growth remained strong.

Government Consumption Also Remained Strong

Government Final Consumption Expenditure grew by:

6.6% in 2025-26

compared with:

6.5% in 2024-25.

The important point is that government consumption growth remained broadly stable rather than being the principal acceleration factor.

The larger story in 2025-26 was the combination of:

private consumption + investment

rather than government consumption alone.

Investment: The Second Major Growth Engine

Investment was another important pillar of the economy.

Gross Fixed Capital Formation (GFCF) grew by:

7.1% in 2025-26

compared with:

6.4% in 2024-25.

This is significant because fixed investment expands the economy’s productive capacity.

Examples include investment in:

machinery,
factories,
telecommunications infrastructure,
construction,
automobiles,
metals,
and other productive assets.

Government capex had a crowding-in effect

The report specifically notes that government-led capital expenditure continued to play a counter-cyclical role, helping to crowd in private investment.

This is an important concept for UPSC and RBI Grade B descriptive papers/interviews.

What does “crowding in” mean?

It means government investment can stimulate private investment rather than simply replacing it.

For example:

Government infrastructure spending → better roads/logistics/connectivity → lower business costs → improved expected returns → private investment increases

This is different from the traditional concern of crowding out, where government borrowing or spending could potentially displace private investment.

Corporate Investment and Business Confidence

Private investment also showed signs of improvement.

The report notes that private-sector net fixed-asset growth recovered during 2025-26.

It increased to 11.5% in H1:2025-26, driven by sectors including:

telecommunications,
metals,
construction,
automobiles.

Corporate profitability also improved.

During Q1–Q3:2025-26, average operating profits of private non-financial companies increased to 9.4%, compared with 5.7% during the corresponding period of the previous year.

The report therefore presents an important combination:

Improving demand + improving corporate profitability + government capex → improving investment environment

Gross Domestic Savings Also Increased

The investment story needs to be considered alongside savings.

Gross domestic savings increased to:

34.2% of GNDI in 2024-25

from:

32.3% in 2023-24.

Household financial savings also showed an important change.

Net household financial saving

It increased to:

7.0% of GNDI in 2024-25

from:

5.8% in 2023-24.

This happened because the decline in household financial liabilities more than offset the moderation in gross financial saving.

Household financial saving remained dominated by:

Deposits
Provident and pension funds
Insurance

while investment in shares and debentures gradually increased.

Saving-Investment Gap Narrowed

This is a particularly useful concept for UPSC, RBI Grade B and interviews.

The household sector remained the primary net supplier of funds.

Its surplus funds increased to:

7.8% of GDP in 2024-25

from:

6.4% in 2023-24.

Meanwhile:

the resource gap of private corporations narrowed,
and government dissaving declined to 4.6% of GDP from 5.3%.

The report says the narrowing of the economy-wide saving-investment gap indicates reduced dependence on external capital and lower vulnerability to external shocks.

Exam Concept

If domestic savings are sufficient to finance a greater proportion of domestic investment, dependence on external capital can decline.

Therefore:

Higher domestic savings + narrower saving-investment gap → potentially greater external resilience

Agriculture: Growth Moderated Despite Record Production

Agriculture presents an interesting paradox.

Agriculture and allied activities recorded real GVA growth of:

2.4% in 2025-26

down from:

4.2% in 2024-25.

The moderation was linked partly to weather-related disruptions affecting kharif crops.

However, this does not mean agricultural production declined across the board.

In fact, the report records record total foodgrain production in 2025-26.

The second advance estimates put foodgrain production at:

3,486.6 lakh tonnes

against:

3,386.3 lakh tonnes in 2024-25.

That represents an increase of approximately 3.0%.

This distinction is extremely important.

Agricultural GVA growth and agricultural production are not the same thing.

An exam question may deliberately test this distinction.

Agricultural Production: Key Numbers

The report records strong production for several crops.

Crop	2024-25	2025-26 SAE	Change
Foodgrains	3,386.3 lakh tonnes	3,486.6	+3.0%
Rice	1,389.0	1,406.5	+1.3%
Wheat	1,179.5	1,202.1	+1.9%
Coarse cereals	588.2	639.3	+8.7%
Pulses	229.7	238.7	+3.9%
Sugarcane	4,546.1	5,002.0	+10.0%
Oilseeds	416.6	410.0	−1.6%

Among the notable records were:

kharif rice,
wheat,
maize,
kharif groundnut,
rapeseed and mustard,
and sugarcane.

Why Was Agriculture Still Resilient?

Several factors helped.

The 2025 south-west monsoon was above normal.

The monsoon arrived over Kerala on May 24, 2025, eight days ahead of its normal onset date of June 1, making it the earliest arrival since 2009.

Reservoir levels also improved significantly.

As of March 27, 2026, reservoir levels stood at 47% of full capacity, which was:

10.5% higher than the previous year,
and 21.0% above the 10-year average.

This provided support for rabi and subsequent agricultural activity.

Foodgrain Stocks: A Major Buffer

At end-March 2026, the Food Corporation of India’s public foodgrain stocks were more than four times the buffer requirement.

Total stocks stood at around:

939 lakh tonnes

including:

Rice: 721.2 lakh tonnes
Wheat: 217.9 lakh tonnes

Rice stocks were about 5.3 times the buffer norm, while wheat stocks were about 2.9 times the requirement.

This matters for both agriculture and inflation.

Adequate stocks can give the government greater capacity for:

food distribution,
market intervention,
supply management,
and limiting excessive price pressures.

Manufacturing: A Strong Recovery

The industrial sector was one of the biggest positives in the RBI Annual Report FY 2025-26.

Real GVA growth in industry increased to:

9.5%

from:

8.7% in 2024-25.

Manufacturing was the principal contributor.

Manufacturing GVA growth increased to:

11.5%

from:

9.3%.

Important manufacturing segments included:

basic metals,
motor vehicles,
other transport equipment.

The report attributes the industrial improvement partly to steady industrial credit growth and policy measures such as the Production Linked Incentive (PLI) scheme and the National Manufacturing Mission.

Industrial Production: H1 Weakness, H2 Recovery

The Index of Industrial Production (IIP) showed a two-part story.

First half of 2025-26

IIP growth moderated, partly because of:

mining,
and electricity.

Second half

IIP recovered as:

mining activity rebounded,
manufacturing strengthened further.

The report notes that 16 of 23 industry groups recorded expansion during 2025-26.

All use-based categories of industries also recorded growth.

This is an excellent descriptive-answer point:

Industrial performance improved as the year progressed, indicating strengthening momentum rather than uniformly strong growth throughout the year.

Manufacturing Capacity Utilisation Improved

Capacity utilisation is an important indicator of whether existing industrial capacity is being used more intensively.

Manufacturing capacity utilisation increased to:

75.6% in Q3:2025-26

This was the second successive quarterly increase.

The improvement was supported by:

sequential growth in new orders,
and stable inventory levels.

Why is capacity utilisation important?

If utilisation rises sufficiently:

Higher demand → greater utilisation of existing capacity → need for additional capacity → private capex → future productive capacity

Thus, rising capacity utilisation can eventually strengthen the investment cycle.

PLI Scheme: Important Exam Data

The report provides concrete numbers on the PLI scheme.

As of end-December 2025:

Actual investment attracted: over ₹2.2 lakh crore
Incremental production/sales: over ₹20.4 lakh crore
Employment generated: over 14.4 lakh

These numbers are highly relevant for:

RBI Grade B
UPSC Economy
IBPS SO/PO and banking exams
government recruitment examinations
interviews involving economic policy

The broader significance is that industrial policy is being used not only to increase production but also to attract investment and create employment.

Renewable Energy and the Industrial Transition

The industrial story also has an important energy dimension.

Renewable energy, including large hydro, accounted for nearly one-fourth of power generation and grew by 18.4% year-on-year in 2025-26.

By end-March 2026:

Non-fossil energy capacity = 283 GW

This represented:

53.2% of total installed power capacity

The report notes that this enabled India to meet its COP26 target of 50% non-fossil installed capacity well ahead of 2030.

The significance goes beyond climate policy.

Greater renewable capacity can contribute to:

energy security,
reduced fossil-fuel dependence,
green investment,
technological development,
and long-term industrial competitiveness.

Services Sector: Still the Largest Growth Engine

If manufacturing was the major industrial bright spot, services remained the backbone of aggregate supply.

Services-sector real GVA growth increased to:

8.7% in 2025-26

from:

7.8% in 2024-25.

The report notes that services accounted for around 69% of real GVA growth.

This confirms the continuing importance of services in India’s economic structure.

Which Services Segments Performed Best?

The strongest expansion came from several broad categories.

Trade, hotels, transport, communication, broadcasting and storage

Growth reached:

10.1%

compared with 6.6% in 2024-25.

Financial, real estate, IT and professional services

Growth reached:

9.9%

compared with 10.0% a year earlier.

Construction

Growth was:

7.1%

compared with 7.3%.

Public administration, defence and other services

Growth was:

5.8%

compared with 5.0%.

Thus, services growth was broad-based rather than being dependent on just one subsector.

High-Frequency Indicators Confirmed Service-Sector Strength

The report examines a wide range of high-frequency indicators.

During H2:2025-26, several indicators improved compared with H2:2024-25, including:

commercial vehicle sales,
vehicle registrations,
retail automobile sales,
domestic air cargo,
port cargo,
railway freight traffic,
foreign tourist arrivals,
and GST e-way bills.

However, not every indicator moved upward.

Air passenger traffic and toll collection by value moderated, while the hotel occupancy indicator also contracted during the period.

This is an important analytical lesson:

A strong services sector does not mean every individual service indicator rises simultaneously.

Construction and Housing

Construction presented a mixed picture.

The report notes:

moderating steel consumption,
improving cement production,
acceleration in housing launches during Q3:2025-26.

GST-led cost reductions supported housing launches, while sales showed some moderation after modest growth in the previous quarter.

Housing inventory conditions also remained better than the pre-COVID benchmark.

Sales-adjusted inventory overhang stood below the two-year pre-COVID average of 32 months.

Employment: What Happened to the Labour Market?

The employment picture remained broadly stable in 2025.

According to the annual Periodic Labour Force Survey (PLFS) data cited in the report, the:

Labour Force Participation Rate (LFPR),
Worker Population Ratio (WPR),
and Unemployment Rate (UR)

showed marginal declines.

The report also highlights structural changes in employment composition.

The share of:

regular wage/salaried employment, and
casual labour

increased,

while the share of:

self-employment

declined.

The agricultural sector’s share in total employment continued to decline, while the shares of:

other services,
manufacturing,
and trade

increased.

What Do the Labour Trends Mean?

The employment story suggests a gradual shift in the structure of employment.

The broad movement can be represented as:

Agriculture employment share ↓

while:

Manufacturing + trade + services employment share ↑

This is relevant to India’s longer-term structural transformation.

However, the report does not present employment transformation as complete. Rather, it notes stable labour-market conditions and changing employment composition.

Labour reforms

The report expects recently enacted labour reforms to:

improve labour-market flexibility,
reduce compliance burden,
expand social-security coverage,
strengthen statutory minimum wages,
improve health and safety provisions,
encourage formal job creation,
and support enterprise expansion.

This will be important in UPSC Mains, RBI Grade B Phase 2, interviews and descriptive banking examinations.

The Real-Economy Growth Story in One Table

Component	2024-25	2025-26	Direction
Real GDP	7.1%	7.6%	↑
Private consumption	5.8%	7.7%	↑
Government consumption	6.5%	6.6%	Slight ↑
Gross fixed capital formation	6.4%	7.1%	↑
Agriculture & allied GVA	4.2%	2.4%	↓
Industry GVA	8.7%	9.5%	↑
Manufacturing GVA	9.3%	11.5%	↑
Services GVA	7.8%	8.7%	↑

What Actually Drove India’s 2025-26 Growth?

The evidence from the report allows the growth story to be reduced to a clear chain:

Demand

Rural consumption + urban demand

↓

Private consumption growth of 7.7%

↓

Investment

Government capex + improving private investment

↓

GFCF growth of 7.1%

↓

Supply

Manufacturing growth of 11.5%

Services growth of 8.7%

↓

Outcome

Real GDP growth of 7.6%

This is a much better way to remember the chapter than memorising isolated statistics.

What Were the Weak Spots?

The economy’s performance was strong, but it was not uniform.

Agriculture

GVA growth declined from 4.2% to 2.4%, partly because of weather disruptions.

Industrial production

IIP growth was weaker in H1 before recovering in H2.

Some services indicators

Air passenger traffic, toll collection by value and hotel occupancy did not all maintain the same momentum.

Global environment

Trade uncertainty and geopolitical tensions continued to create downside risks.

The report therefore describes the economy as resilient, not invulnerable.

Exam Points

Must-Memorise Numbers

GDP growth → 7.6%
PFCE growth → 7.7%
GFCE growth → 6.6%
GFCF growth → 7.1%
Agriculture GVA → 2.4%
Industry GVA → 9.5%
Manufacturing GVA → 11.5%
Services GVA → 8.7%
Services contribution → around 69% of real GVA growth
Manufacturing capacity utilisation → 75.6% in Q3:2025-26
Foodgrain production → 3,486.6 lakh tonnes
PLI investment → over ₹2.2 lakh crore
PLI incremental production/sales → over ₹20.4 lakh crore
PLI employment → over 14.4 lakh
Non-fossil energy capacity → 283 GW
Non-fossil share of installed power capacity → 53.2%

Possible Exam Questions

Objective Questions

Q1. India’s real GDP growth in 2025-26 was:
A. 6.9%
B. 7.1%
C. 7.6%
D. 8.0%

Answer: C — 7.6%.

Q2. Which two components anchored India’s GDP growth in 2025-26?

Answer: Private Final Consumption Expenditure and Gross Fixed Capital Formation.

Q3. Real manufacturing GVA growth in 2025-26 was:

Answer: 11.5%.

Q4. Real services GVA growth in 2025-26 was:

Answer: 8.7%.

Q5. Real agriculture and allied GVA growth in 2025-26 was:

Answer: 2.4%.

Q6. Manufacturing capacity utilisation reached what level in Q3:2025-26?

Answer: 75.6%.

Q7. What was total foodgrain production according to the 2025-26 second advance estimates?

Answer: 3,486.6 lakh tonnes.

Q8. What was the PLI scheme’s actual investment at end-December 2025?

Answer: Over ₹2.2 lakh crore.

Q9. What percentage of India’s installed power capacity was non-fossil at end-March 2026?

Answer: 53.2%.

Possible RBI Grade B / UPSC Mains Question

“Discuss the major drivers of India’s economic growth during 2025-26. Examine the contribution of consumption, investment, manufacturing, services and agriculture.”

Answer approach

A strong answer should follow this structure:

Introduction

India’s real GDP growth accelerated to 7.6% in 2025-26, supported by strong domestic demand and improving supply-side activity.

Demand side

PFCE grew 7.7%.
GFCF grew 7.1%.
Rural and urban consumption improved.
Government capex supported private investment.

Supply side

Manufacturing GVA grew 11.5%.
Industry GVA grew 9.5%.
Services GVA grew 8.7%.
Agriculture moderated to 2.4%.

Structural factors

PLI-supported investment.
Rising manufacturing capacity utilisation.
Strong services activity.
Improving non-fossil energy capacity.
Changing employment structure.

Challenges

Weather-related agricultural risks.
Global trade uncertainty.
Geopolitical tensions.
Uneven performance among individual sectors.

Conclusion

India’s growth was broad-based and resilient, but sustaining it requires continued investment, productivity improvement, employment generation and resilience against external and climate-related shocks.

Interview Questions You Should Be Ready For

“If GDP grew 7.6%, why did agriculture grow only 2.4%?”

Because GDP growth is determined by the performance of the entire economy. Strong services, manufacturing, consumption and investment more than offset the moderation in agriculture.

“Is India becoming a manufacturing-led economy?”

Not yet in the sense of manufacturing replacing services as the dominant growth driver. Manufacturing strengthened considerably, with 11.5% real GVA growth, but services remained the primary contributor to aggregate supply.

“Why is capacity utilisation important?”

Rising utilisation indicates stronger demand for existing capacity and can encourage businesses to invest in new productive capacity.

“Why is the saving-investment gap important?”

A narrower gap can reduce dependence on external capital and therefore improve resilience against external financial shocks.

Key Takeaways

India’s real GDP growth accelerated from 7.1% to 7.6% in 2025-26.
Private consumption and fixed investment were the principal demand-side drivers.
PFCE growth increased to 7.7%.
GFCF growth increased to 7.1%.
Government consumption remained broadly stable at 6.6%.
Agriculture and allied GVA growth moderated to 2.4%.
Despite slower GVA growth, total foodgrain production reached a record 3,486.6 lakh tonnes.
Industrial GVA growth strengthened to 9.5%.
Manufacturing GVA growth accelerated sharply to 11.5%.
Manufacturing capacity utilisation reached 75.6% in Q3:2025-26.
Services remained the primary supply-side growth engine, with 8.7% GVA growth.
Services accounted for around 69% of real GVA growth.
PLI had attracted over ₹2.2 lakh crore of actual investment by end-December 2025.
Non-fossil energy capacity reached 283 GW, or 53.2% of installed power capacity.
Employment conditions remained broadly stable, while the employment structure gradually shifted toward manufacturing, trade and services.
The economy’s resilience came from the interaction of consumption + investment + manufacturing + services, rather than from any single sector.

Exam Revision: The 20-Second Formula

Remember:

7.6 – 7.7 – 7.1 – 9.5 – 11.5 – 8.7 – 2.4

7.6 → GDP
7.7 → Private consumption
7.1 → Fixed investment
9.5 → Industry
11.5 → Manufacturing
8.7 → Services
2.4 → Agriculture

And remember the story:

Consumption + Investment → GDP

Manufacturing + Services → Supply

Agriculture → Production strong, GVA growth moderated

Employment → Broadly stable, with gradual structural shift

Final Assessment

The real-economy story in the RBI Annual Report FY 2025-26 is one of broad-based resilience with uneven sectoral performance.

The most important development was not simply that GDP grew by 7.6%. The deeper story is that domestic demand remained strong, private consumption accelerated to 7.7%, fixed investment strengthened to 7.1%, manufacturing grew at 11.5%, and services expanded at 8.7%.

Agriculture was the principal relative weak spot, with GVA growth slowing to 2.4%, but record foodgrain production, strong stocks and favourable reservoir conditions provided important support.

The investment cycle also deserves special attention. Government capital expenditure helped crowd in private investment, while improving capacity utilisation, corporate profitability and PLI-linked investment provided signs of strengthening productive capacity.

For RBI Grade B, UPSC, IBPS, banking exams and interviews, the key lesson is therefore:

Do not treat GDP as a single number. Analyse GDP through its demand drivers, supply composition, investment cycle, agricultural performance, industrial capacity, services momentum and employment structure.

That framework will allow you to answer both factual MCQs and analytical/descriptive questions from this part of the RBI Annual Report FY 2025-26.

Next Part — Part 4

RBI Annual Report FY 2025-26: Inflation — CPI, Food Inflation, Fuel, Core Inflation, WPI and MSPs