India's economy grew by an estimated 6.7 per cent during the first quarter of FY2026, beating Reserve Bank of India's (RBI) estimate of 6.5 per cent, ratings agency ICRA said. Growth, though, is a moderation of 7.4 per cent in Q4 FY2025, but is still above the Monetary Policy Committee's (MPC) recent estimate of 6.5 per cent.
ICRA estimates gross value added (GVA) growth at 6.4 per cent in Q1 FY2026, from 6.8 per cent in the last quarter, on account of softer performance in industry and agriculture, offset to some extent by resilience in the services sector.
Industry is set to slow considerably, with growth estimated at 4.0 per cent, from 6.5 per cent in Q4 FY2025.
Agriculture expansion will slow to 4.5 per cent from 5.4 per cent.
Services, however, are projected to speed up to an eight-quarter high of 8.3 per cent from 7.3 per cent previously.
The agency also pointed out a double-digit rise in net indirect taxes on a nominal basis, albeit less than the 22.7 per cent increase in Q4 FY2025. This recovery is on the heels of an 11.3 per cent increase in the Centre's indirect tax collections, a reversal of the 3.1 per cent decline last quarter.
Subsidy outgo declined at a slower rate of 7.3 per cent, whereas it had plummeted by a sharp 40.7 per cent earlier. Consequently, the gap between GDP and GVA growth will continue to remain positive by about 30 basis points in Q1 FY2026, though lower than 62 basis points in Q4 FY2025.
Government spending has been a crucial driver of growth. As per Controller General of Accounts (CGA) data:
The Centre's year-on-year capital spending rose by 52 per cent to ₹2.8 trillion in Q1 FY2026, which is above 33.4 per cent year-on-year growth in Q4 FY2025 and a strong bounce-back from the 35 per cent fall in Q1 FY2025.
The aggregate capital expenditure and net lending of 24 states increased by 23 per cent to ₹1.1 trillion, after a 27 per cent expansion in Q4 FY2025 and a 19.6 per cent decline in Q1 FY2025.
Investment momentum has continued to be robust as well. Fresh project announcements almost doubled to ₹5.8 trillion, from ₹3.0 trillion in Q1 FY2025. Project completions at ₹2.3 trillion were significantly ahead of ₹0.7 trillion a year earlier, while marginally below ₹2.5 trillion completed in the previous quarter.
The services sector is likely to continue to be a major driving force, aided by increased government expenditure. Non-interest revenue expenditure of 24 state governments increased by 10.7 per cent in Q1 FY2026, from 7.2 per cent in Q4 FY2025. Likewise, the Centre's non-interest revenue expenditure increased by 6.9 per cent, after a 6.1 per cent decline in the last quarter.
On the farm side, ICRA is forecasting expansion in agriculture, forestry, and fishing to slow to 4.5 per cent in Q1 FY2026 from 5.4 per cent, although the growth still remains higher than the 1.5 per cent recorded in the same quarter of last year.
The sector has been aided by strong production of most rabi and summer crops in 2024–25, as reflected by the third advance estimates.
Forward-looking, the agency also indicated that successful passing through of monetary easing measures and the recently proposed plans of the government towards GST rationalisation can support urban consumption demand, especially in the pre-festival season.
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