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Informist, Monday, Sept. 1, 2025

 

NEW DELHI – With the Indian economy expanding quicker than expected in the June quarter, economists have raised their GDP growth forecasts for the current financial year. GDP growth for FY26 is now seen closer to the Reserve Bank of India's projection of 6.5 per cent despite risks to economic activity from US tariffs, economists said.

 

Data released Friday showed India's GDP growth rose to a five-quarter high of 7.8% in the June quarter. Growth was much higher than the 6.7% projected by economists in an Informist Poll. It was also 130 basis points higher than the RBI's forecast of 6.5%.

 

Growth during the first quarter of FY26 was led by the services and manufacturing sectors, and also by the statistical impact of lower inflation, with nominal GDP growth falling to a three-quarter low of 8.8%.

 

"Overall, Q2 (Apr-Jun) real GDP growth is significantly stronger than expected, but it is amplified by low deflators, driven by one-off factors (frontloading) and inconsistent with other demand signals (low inflation, slow credit growth, modest current account deficit), so we do not believe it is a sign of strong underlying demand," economists at Nomura said in a report. But statistical factors alone have pushed Nomura to raise its growth forecast for FY26 by 60 bps to 6.6%.

 

Nomura is not alone. Morgan Stanley, Emkay Global Financial Services, IDFC FIRST Bank, ICICI Securities Primary Dealership, Kotak Mahindra Bank, and Nirmal Bang Institutional Equities are some other organisations who now see FY26 GDP growth higher than expected before the June quarter print. Most FY26 GDP growth estimates now range between 6.4% and 6.7% against the previous consensus expectation of 6.3%.

 

"The latest GDP data indicates full year growth could still be close to RBI forecast of 6.5% for the full year, notwithstanding the drag from high tariffs," ICICI Securities Primary Dealership said in a report. The drag on growth from tariffs could be partially offset from the proposed reduction in goods and services tax rates, and soft GDP deflator values, the report said.

 

The five-quarter high growth print has also pushed back expectation of further easing by the RBI's Monetary Policy Committee. Economists expects the MPC to leave the repo rate unchanged at 5.50% for the second consecutive meeting on Oct. 1, after 100-bps of rate cuts between February and June.  

 

Economists expect the MPC to "wait-and-watch" to assess the pace of monetary policy transmission, the impact of the 50% US tariff, and the proposed GST reforms before deciding on the need for further policy easing. "However, we do expect the bias for monetary policy to remain in favour of further easing given the underlying growth situation and risks, with nominal growth likely to trend lower in H2," ICICI Securities Primary Dealership said.  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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