India's economic growth is likely to have eased to a four-quarter low of 7.1% in Q1 FY27, down from 7.8% in Q4 FY26, as per the latest Reuters poll of 58 economists conducted between August 17-24. According to Business Standard, economists expect headline growth to have softened, with forecasts ranging between 6.2% by India Ratings & Research (Ind-Ra) and 8% by the State Bank of India (SBI). The National Statistics Office (NSO) is scheduled to release the gross domestic product (GDP) estimates for Q1 on August 31. As per ICRA, the slowdown was primarily driven by weakness in mining, electricity generation, GST e-way bill generation, and domestic airline passenger traffic, with risks rising due to inflation and weak rainfall. If the forecast is correct, India would remain the world's fastest-growing major economy.
The latest data from Datanomics reveals that profit before interest, taxes, and depreciation plus employee costs for NSE 500 non-banking, financial services, and insurance companies fell to a seven-quarter low of 7.1% in Q1FY27, which roughly corresponds to the non-financial, non-farm gross value-added (GVA). This decline in corporate earnings may have contributed to the overall GDP growth slowdown, as rising deflators may further cut GVA at constant prices. The crop GVA in Q1 is mainly residual rabi crops, with the major effect of sub-normal monsoon expected to be felt in Q2FY27.
The growth slowdown was primarily attributed to more subdued private investment, though consumer spending and government expenditure provided support. As per HDFC Bank's principal economist Sakshi Gupta, "We started seeing some sort of a nascent recovery in private investment since the second half of last year but it is yet to become stronger, more durable and more broad-based." The conflict around the US-Iran war made private players more cautious about capacity expansion plans in certain sectors. However, consumer demand momentum continued through the quarter, with the pass-through of input cost pressures and elevated oil prices being limited. Last year's Goods and Services Tax rate cut and income tax reductions likely continued to support household disposable income and demand, helping cushion the impact of rising inflation.
The growth in core sector output also eased to 5.4% in July 2026 from an upwardly revised 6% in June 2026, with deterioration in performance across five of the nine sectors. As reported by Business Standard, iron ore output growth moderated sharply to 29.5% in July, while electricity generation and steel output recorded slower growth. In contrast, coal output growth touched an 11-month high of 7.6%, and cement output rose to a seven-month high of 13.1%, indicating healthy construction activity. According to ICRA, the surge in rainfall in July 2026 may have impacted sectors like electricity generation and mining output, though this improvement is likely linked to seasonal uptick in agricultural activities, especially Kharif sowing. The Index of Industrial Production (IIP) is expected to moderate to 6-6.5% in July 2026 from 7.3% in June, with financial indicators such as bank deposits, non-food bank credit, and petrol and diesel consumption showing improvement in their Y-o-Y performance.
The services sector faced significant headwinds during Q1 FY27, with 18 of the 19 sub-actors in the Index of Services Production showing eased growth in the first two months (April-May) compared to Q4 FY26. As per data released by the Ministry of Statistics and Programme Implementation, there was deceleration in trade, hotels, transport, communication and broadcasting services (THTCS), while financial, real estate and professional services (FREPS) continued to show broad-based improvement. According to ICRA, HFIs across the industrial and services sectors revealed a healthy picture of domestic volume growth in Q1, belying concerns of fallout from higher commodity prices due to the West Asia conflict. However, oil refining companies experienced sizeable losses in Q1 FY27, which would impact GVA growth. The SBI reported that 86% of over 50 leading indicators showed acceleration in Q1 FY27, compared with 69% in Q4 FY26, with consumption and demand remaining resilient despite some softening in momentum.
