India’s GDP in the ongoing fiscal is likely to be in line with FY25 amidst slower global growth dragging exports and further hindering private capex.
The GDP growth rate rose to a four-quarter high of 7.4% in the January-March period, while GVA rose 6.8% during the fourth quarter. For the full year, GDP is estimated to have grown by 6.5%, which is the same as compared to the second advance estimate of 6.5%. Net exports were a strong positive contributor, as exports grew 6.3% while imports declined 3.7% in FY26.
For FY26, India’s merchandise exports are expected to be uncertain from a projected slowdown in global trade due to downside risks emanating from ongoing geopolitical conflicts, geoeconomic fragmentation and policy uncertainty, cautioned the Reserve Bank of India in its annual report published last week. However, the ongoing trade agreement negotiations with several trade partners may facilitate India’s greater participation in global trade, it added.
The full-year FY26 GDP growth estimate is retained at 6.3%, with merchandise exports expected to be softer due to the uncertainty created by the tariffs, said Gaura Sengupta, chief economist at IDFC First Bank. Corporate capex is likely to remain tentative with heightened uncertainty created by the tariffs and uncertainty on urban consumption outlook, she added.
“Looking ahead, we remain cautious about subdued activity among private economic agents and are closely monitoring global headwinds,” Madhavi Arora, lead economist at Emkay, also said. FY26 is expected to face challenges from global uncertainties, which may dampen corporate investment intentions and export growth, she said.
Additionally, softening urban incomes are likely to constrain private consumption, Arora cautioned. While countercyclical monetary policy may offer some relief, the space for conventional fiscal support appears limited, she said, explaining the rationale behind marking down the FY26 GDP growth estimate to 6%, factoring in the weaker global momentum and muted domestic drivers.
Still, growth will get support from the normalisation of the government expenditure pattern after being impacted by the election last year, according to Sengupta. Agriculture and rural demand are expected to remain on the stronger side, assuming a well-distributed monsoon. Transient factors will also provide some impetus to growth with a sharp slowdown in GDP deflator growth with moderation in both WPI and CPI inflation, she said. “This will provide a boost to real GDP growth as well as some improvement in companies’ margins with softer growth in input cost,” she said.
Monetary Policy To Continue To Support Growth
The higher-than-expected growth outcome may raise questions around the RBI Monetary Policy Committee’s actions, Astha Gudwani said, chief economist at Barclays said. “We believe the growth-inflation balance will still prompt the MPC to deliver another 25 basis points repo rate cut at the June 6 meeting,” she said.
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