India's GDP projected to grow 7.2% in FY26: Brickwork Ratings

It projected real GDP growth to moderate to 6.4 per cent and 6.3 per cent in the third (Q3) and fourth (Q4) quarters respectively, largely reflecting the impact of the 50-per cent US tariffs with trade policy uncertainties expected to weigh more heavily on economic activity during this period.

Goods and services tax (GST) rate cuts will provide some relief, but are unlikely to offset the adverse effects of US tariffs in H2 FY26, it noted in a release.

From a credit ratings standpoint, the broad-based growth strengthens India’s macroeconomic resilience. The strong Q2 outcome supports fiscal revenues and corporate earnings, enhancing sovereign credit stability.

However, sectoral imbalances—particularly mining contraction and weak utilities—highlight the need for diversified growth drivers to sustain investor confidence amid global trade tensions and fiscal constraints, the rating agency remarked.

Inflation over the next two to four quarters is expected to remain moderate, supported by food price stability and easing core pressures. Impact from GST rationalisation and targeted rate cuts, although fading gradually, should reinforce fiscal efficiency and reduce indirect tax burdens, helping contain price pass-throughs over the next one to two quarters, Brickwork Ratings observed.

Meanwhile, the Production-Linked Incentive (PLI) schemes are likely to boost domestic manufacturing capacity, easing supply-side bottlenecks and mitigating imported inflation. Together, these factors enhance policy flexibility, though global commodity volatility remains a key risk.

Manufacturing purchasing managers’ index (PMI) is expected to remain above long-term averages over the coming quarters, supported by resilient domestic demand and firms’ ability to pass through input costs.

While sentiment around future manufacturing growth remains optimistic, sustaining momentum will hinge on easing inflationary pressures, competitive dynamics, global growth trends, external tariffs and supply chain stability, it remarked.

Supportive government policies, infrastructure investments, and robust consumption patterns are likely to cushion potential downside risks, it added.

ALCHEMPro News Desk (DS)