India’s GDP expansion is projected to ease to 6.7 per cent in Q1 FY2026 from 7.4 per cent in Q4 FY2025, while the growth in the gross value added (GVA) is projected to record a dip to 6.4 per cent in Q1 FY2026 from 6.8 per cent in Q4 FY2025, the rating agency ICRA said.
It also projected lower expansion in the industrial sector to +4.0 per cent in Q1 FY2026 from +6.5 per cent in Q4 FY2025, and agriculture to +4.5 per cent from +5.4 per cent, which is likely to outweigh a pickup in the performance of the services sector to an eight-quarter high +8.3per cent from +7.3 per cent.
ICRA has outpaced the Reserve Bank of India’s (RBI’s) Monetary Policy Committee’s (MPC’s) recent forecast of 6.5 per cent.
It further estimated a double-digit growth in net indirect taxes (in nominal terms), albeit lower than 22.7 per cent in Q4 FY2025. This is aided by the sharp uptick in the Government of India’s indirect taxes to +11.3per cent in Q1 FY2026 from -3.1 per cent in Q4 FY2025.
This is despite the narrower contraction in its subsidy outgo (-7.3 per cent vs -40.7per cent). Accordingly, the gap between the GDP and the GVA growth is expected to remain in the positive territory at ~30 bps in Q1 FY2026, while halving compared to the previous quarter (+62 bps), the report said.
Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA, said, “India’s investment activity held up in Q1 FY2026, boosted by the front-loading of government capex, although this admittedly came on a low base, amidst the heightened uncertainty owing to geopolitical tensions and tariff-related developments.”
“Benefitting from robust government capital as well as revenue spending, upfronted exports to some geographies, and nascent signals of improved consumption, the pace of expansion in economic activity in Q1 FY2026 is estimated at 6.7 per cent,” she added.
“Amidst continuing tariff-induced uncertainty for exports and private capex, we fear that growth will taper off in the subsequent quarters, which would limit the expansion in India’s GDP to 6.0 per cent in FY2026,” she further said.
Notably, based on the CGA data, the government’s gross capital expenditure spiked by 52.0 per cent YoY to Rs 2.8 trillion in Q1 FY2026, which is +33.4 per cent in Q4 FY2025; -35.0 per cent in Q1 FY2025 on an election-curtailed base.