India's economic growth is likely to have moderated to 7% in the April-June quarter of 2026-27, down from 7.8% in the preceding quarter, according to ICRA's latest forecast. The rating agency has projected real GVA growth at 7.2% in Q1 FY27, declining from 7.9% in Q4 FY2026. As per ICRA Chief Economist Aditi Nayar, the slowdown is expected to be led by services, with GVA growth projected at around 7.9% in Q1 FY27 from 9.9% in Q4 FY26. The estimate aligns with the Reserve Bank's Monetary Policy Committee forecast for the quarter. The RBI after its August 2026 policy meeting projected India's GDP to grow by 6.7% in FY27, with Q1 at 7% (from 6.6% projected in June), Q2 at 6.4% (from 6.3% projected in June), Q3 unchanged at 6.5%, and Q4 unchanged at 6.8%. India Ratings & Research has projected FY27 GDP growth at 6.8%, slightly higher than its earlier 6.7% projection in May, citing resilient domestic economy.
The services sector emerged as the primary driver of the growth moderation, with 18 of 19 services production indices recording slower year-on-year growth during the first two months of FY27. Business sentiment among services companies also weakened to its lowest optimism level in five years. According to ICRA, growth across all services sub-sectors is expected to moderate, with the YoY performance of most transport and mobility indicators also moderating during the quarter. These included petrol, diesel and aviation turbine fuel consumption, rail freight traffic, GST e-way bill generation and commercial vehicle sales. The slowdown is attributed to headwinds owing to the West Asia crisis as well as persistent wage cost pressures. As per ICRA, oil refining companies experienced sizeable losses in Q1 2026-27, which would impact the GVA growth, with the West Asia crisis-driven surge in raw material costs leading to losses for these companies.
Industrial GVA growth is estimated to improve to 7.7% from 7.3%, supported by mining, electricity and construction sectors. However, manufacturing GVA growth is projected to slow to around 6% from 7.3% due to margin pressures caused by higher input costs. Manufacturing output itself grew 6.3% in Q1 FY27, its fastest pace in six quarters, while overall industrial production expanded 5.8%, up from 3.8% in the previous quarter. As per ICRA, manufacturing volume growth accelerated to 6.3% from 4.7%, its fastest pace in six quarters, though partly supported by a favourable base. This was despite a deterioration in segments such as basic metals, coke and refined petroleum products, and chemicals and chemical products, which were partly impacted by tensions in West Asia during the quarter. Other segments such as computer, electronic and optical products, electrical equipment, machinery and equipment, motor vehicles, trailers and semi-trailers saw healthy uptick in growth rates between these quarters. However, aggregate profits of manufacturing companies contracted in Q1 FY27 following the expansion in Q4 FY26, as the West Asia crisis-driven surge in raw material costs led to losses for oil refining companies.
Agriculture showed resilience with GVA growth in agriculture, forestry, and fishing estimated at 4% in Q1 FY27, up from 3.6% in Q4 FY26, even as disruption related to uneven monsoons would affect performance in subsequent quarters. Consumption remained robust with domestic passenger vehicle sales growing 25.6% on average in Q1FY27, nearly doubling from a 13.1% rise in Q4FY26, while electricity demand growth improved to 8.4% from 1.9% over the same period. Investment activity strengthened significantly, with the Centre's capital expenditure rising 18.6% in Q1FY27, compared with 9.1% in the previous quarter. Government non-interest revenue expenditure rose 19.5% to ₹6.7 trillion in Q1 FY27, though slower than the 21.7% expansion seen in Q4 2025-26. Merchandise exports also grew 15.9% to USD 129.3 billion in Q1 FY27.
As reported by ICRA, profitability of a large group of non-financial companies weakened, mainly due to sizable losses in oil refining companies amid the West Asia conflict. The agency warned that weak monsoon conditions, El Nino risks and prolonged West Asia tensions could weigh on growth, investment, corporate profitability and rural demand. CareEdge Ratings has already revised its FY27 GDP growth forecast to 7% from 6.7%, while DBS Bank sees an upside bias to its estimate. However, nominal GDP expansion is projected to accelerate to a four-year high of ~13% in 2026-27 from 8.9% in 2025-26, amid expectations of a hardening in inflation prints. Based on the assumption of an average crude oil price of nearly $80-85 per barrel in FY27, ICRA expects the real GDP growth to moderate to 6.7% in the fiscal year from 7.7% in FY26, with risks tilted to the downside amid continued tensions in West Asia and monsoon-related uncertainty. India Ratings & Research has forecast quarterly GDP growth at 6.9, 6.6, 6.7, and 6.9% for April-June, July-September, October-December, and January-March respectively, compared to the RBI's prediction of 7, 6.4, 6.5, and 6.8%.
