Economic Outlook & Macro Trends
Amid heightened uncertainty owing to tariff-related developments and geopolitical tensions, India’s economic activity in Q1 FY2026 was supported by a healthy growth in the Government’s capital and revenue spending, upfronted exports to some geographies and nascent signals of improved private consumption. While ICRA projects the GDP growth at a healthy 6.7% in Q1 FY2026 (+7.4% in Q4 FY2025), it is likely to taper off in the subsequent quarters, owing to expectations of a moderation in exports to the US after the unpalatable tariff hikes, which may also delay private capex. Besides, after the surge in the GoI’s capex in Q1, the budgeted target implicity entails a contraction in remaining three quarters, which would also weigh on the GDP growth prints. However, the GoI’s recent announcement on rationalising the GST structure is opportune to boost consumption during the festive season, amid the favourable setting of lower interest rates and income tax relief. At present, ICRA retained its FY2026 GDP growth forecast at 6.0%, and will revisit the same once the details regarding the GST rejig and developments on the India-US trade deal and tariffs becomes available.
