Q2 FY26 Indian GDP growth eases to 7%, remains robust: ICRA estimates

While a lower year-on-year (YoY) rise in government spending is likely to weigh on the pace of the GDP and gross value added (GVA) growth in Q2 FY26, inventory stocking related to the early onset of the festive season, enhanced by the GST rate cuts, and upfronting of exports to the United States ahead of the tariffs, are expected to boost the performance of the manufacturing sector, and help industrial GVA growth outpace that of the services sector.

GVA growth is expected to have eased to 7.1 per cent in Q2 FY26 from 7.6 per cent in Q1.

GDP growth is projected at 6.8 per cent in FY26, amid headwinds posed by uncertain trade policies and other factors in light of the GST cut-led boost across some sectors.

The GDP growth appears set to ease below 7 per cent in the second half (H2) of FY26, ICRA noted.

Consumer price index (CPI)-based inflation is expected to average at 2.2 per cent in FY26 against its earlier projection of 2.4 per cent, dampened by GST rate rationalisation and low food prices. After touching a series-low of 0.3 per cent in October 2025, it is expected to rise thereafter, likely crossing 4 per cent in Q1 FY27, as the base turns adverse.

ICRA expects India's merchandise exports in FY26 to print largely at par with FY25, with risks tilted to the downside. However, merchandise imports are expected to grow by 5-6 per cent in FY26. Based on this, the merchandise trade deficit is expected to widen to $330 billion in FY26 from $287 billion in FY25.

Developments on the tariff deal front and/or policy changes around H-1B visas and HIRE Act further pose a key downside risk to the outlook.

ICRA Ratings expects the government’s to achieve its FY26 fiscal deficit target of 4.4 per cent of GDP.

ALCHEMPro News Desk (DS)