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Informist, Monday, Sept. 7, 2026

By Shweta

NEW DELHI – India's GDP growth is likely to moderate in the remaining quarters of the financial year 2026-27 (Apr-Mar) due to an unfavourable base effect after the economy grew at a better-than-expected 7.8% in the first quarter. Growth is also expected to moderate because of slower government spending, a weak monsoon, slower consumption demand, and higher inflation.

"The base effect and the monsoon will start having their impact from the second quarter," Devendra Pant, chief economist at India Ratings and Research, said. "The impact of last year's GST (goods and services tax) rationalisation, which has given a kicker to consumption growth from the third quarter last year... will not be there (in the third quarter of this year)."

Economists expect India's GDP growth to ease to 7.0–7.6% in the September quarter from 8.1% a year ago. "Some of the government spending appears to have been front-loaded, particularly on the capex (capital expenditure) front. So that could slow down," Abhishek Upadhyay, co-head of economics and fixed income research at ICICI Securities Primary Dealership, said.

Inflation is also expected to rise in the coming months as higher input costs are yet to be fully passed on to consumers, according to economists. Retail inflation averaged 3.9% in the first quarter of FY27. Headline inflation is estimated at 5% in FY27, according to economists. Retail inflation is projected to rise further during the year, mainly due to higher food prices amid a weaker monsoon. Economists also said consumption demand could slow slightly during the same period.

Rural demand is also expected to ease because of unfavourable weather conditions. Economists see weaker rural demand weighing on rural wage growth. However, the impact is likely to be felt mainly in the March quarter, following the rabi harvest season, according to Gaura Sen Gupta, chief economist at IDFC FIRST Bank.

"GDP growth should be somewhat lower (in the coming quarters) given an unfavourable base (effect), but not substantially so," Upadhyay said. A bigger slowdown is not expected, as high-frequency data on discretionary consumption and exports have "held up very well" so far, he said.

"Even the credit growth of the banking sector... continues to be quite strong and FCNR (foreign currency non-resident deposits) flows are also a tailwind," Upadhyay said. "In this light, only a modest slowdown is expected and growth could still be above 7% in the second quarter."

On Aug. 31, the Ministry of Statistics and Programme Implementation released the quarterly GDP estimates, which showed that the Indian economy grew 7.8% in the June quarter under the new series, with FY23 as the base year. At 7.8%, GDP growth was sharply above the consensus estimate of 7.2% and the Reserve Bank of India's projection of 7.0% for Apr-Jun. India's GDP had grown 6.9% in Apr-Jun, 7.7% in Oct-Dec, and 8.6% in Jan-Mar of FY26.

India's nominal GDP growth in the June quarter was 10.3%, higher than 8.1% a year ago. Economists expect the nominal GDP growth to pick up from here despite estimating a modest slowdown in real GDP growth. "Nominal growth should pick up to 12–13%, but that also depends on how fast deflators pick up as both producer margins and retail inflation normalise," ICICI Securities Primary Dealership said in a note.

The GDP deflator came in at 2.3% in Apr-Jun, surprising many economists, since most inflation indicators, including CPI, WPI, and output Producer Price Index, were sharply higher, ranging from 3.9% to 9.4%. Some economists believe that the low GDP deflator means real GDP in the June quarter could be slightly overestimated.

In the new GDP series, "the play of the deflator will be in a way to support real growth because it does double deflation", Sen Gupta said, elaborating on the latest GDP data.

Double deflation is a production-side technique used to estimate the gross value added of an industry at constant prices by deflating gross output and intermediate consumption separately, according to the statistics ministry. The new National Accounts Statistics series has adopted the double-deflation approach for estimating the gross value added of the manufacturing sector. In this approach, output and intermediate consumption are separately deflated using granular producer price indices, and real gross value added is obtained as the difference between real output and real intermediate consumption.

With the release of the June quarter GDP growth estimates, some economists have revised their full-year growth projections. Economists now estimate India's GDP growth at 6.8–7.5%, given these headwinds. Earlier, they had estimated FY27 GDP growth at 6.0–7.0%. Economists' full-year GDP estimates are above the central bank's growth forecast of 6.7% but below FY26 GDP growth of 7.8%.

Overall, high-frequency data available so far suggest that GDP growth momentum remains quite strong, economists said. The case for sustained GDP growth momentum is supported by the government's relatively high cash balance. Even if there is fiscal slippage, "the government can dip into its cash surplus and fund that fiscal slippage", Sen Gupta said.  End

Edited by Rajeev Pai

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