India’s gross domestic product (GDP) is likely to ease to a four-quarter low of 7% in the June quarter of the financial year 2026-27 (Q1 FY27) from 7.8% in Q4 FY26, largely due to tensions in West Asia and monsoon-related uncertainty, according to rating agency ICRA.
According to ICRA, the slowdown is expected to be caused by the services sector, which is likely to ease to 7.9% in Q1FY27 from 9.9% in Q4FY26.
However, the industrial, which may grow by 7.7% compared to 7.3% in the last quarter of FY26, and agricultural, which is likely to rise to 4% from 3.6% quarter-on-quarter, is expected to show growth, as per ICRA’s estimates.
Meanwhile, the Reserve Bank of India (RBI), after its August 2026 policy meeting, projected India’s GDP to grow by 6.7% in FY27. The revised estimates are 10 basis points higher than the previous projection of 6.6%, with Q1 at 7% (from 6.6% projected in June), Q2 at 6.4% (from 6.3% projected in June), Q3 unchanged at 6.5%, and Q4 unchanged at 6.8%. Real GDP growth for Q1FY28 is projected at 7.3%.
GVA likely to come at 7.2% in Q1 FY27
ICRA expects overall gross value added (GVA) to come in at 7.2% in Q1 FY27 (7.9% in Q4 FY26), nearly 0.2 percentage points higher than the expected GDP growth, which may be weighed down by a compression in net indirect taxes on products.
“High frequency indicators across the industrial and services sectors have revealed a healthy picture of domestic volume growth in Q1FY27, belying the concerns of a fallout of higher commodity prices in the quarter on account of the West Asia conflict,” said Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA.
“However, oil refining companies experienced sizeable losses in Q1 2026-27, which would impact the GVA growth. On balance, ICRA projects the real GDP expansion to have eased to 7% in Q1 2026-27 from 7.8% in Q4FY26, in line with the monetary policy committee’s growth forecast for the quarter,” Nayar said.
ICRA estimates the YoY expansion in the services GVA to slow to nearly 7.9% in Q1FY27 from 9.9% in Q4FY26, amid a broad-based deceleration across all sub-sectors.
ICRA pointed out that the newly released data from the Ministry of Statistics and Programme Implementation showed that YoY growth in 18 of the 19 indices of services production eased over two months of FY27 compared to Q4 FY26.
Besides, business sentiment among services companies weakened materially in Q1 FY27, with the pace of optimism dipping to its lowest level in five years amid headwinds from the West Asia crisis and persistent wage cost pressures, said the rating agency.
ICRA estimates industrial GVA growth rose to 7.7% in the June quarter from 7.3% in the December quarter last year, led by all sub-sectors except manufacturing.
Manufacturing volume growth improved to 6.3% in Q1FY27 from 4.7% QoQ, the fastest pace in six quarters, though partly supported by a favourable base. This was despite a deterioration in the YoY performance in segments such as basic metals, coke and refined petroleum products, and chemicals and chemical products, which were partly impacted by tensions in West Asia during the quarter, said ICRA.
However, other segments such as computer, electronic and optical products, electrical equipment, machinery and equipment, motor vehicles, trailers and semi-trailers saw a healthy uptick in their growth rates between these quarters, with the latter reflecting continued demand momentum post the GST rate rationalisation, ICRA added.
ICRA highlighted that, amid improved volume growth, the quarterly financial results of a sample of 978 manufacturing companies showed that aggregate sales grew between these quarters. However, their aggregate profits contracted in Q1 FY27 following the expansion in Q4 FY26, as the West Asia crisis-driven surge in raw material costs led to losses for oil refining companies.
Consequently, ICRA estimates the manufacturing GVA growth to moderate to nearly 6% in Q1 FY27 from 7.3% in Q4 FY26, the lowest growth print since Q2 FY25.
ICRA estimates GVA growth in agriculture, forestry, and fishing at a healthy 4% in Q1 FY27, up from 3.6% in Q4 FY26, even as disruption related to uneven monsoons would affect performance in subsequent quarters.
“Based on the assumption of an average crude oil price of nearly $80-85 per barrel in FY27, ICRA expects the real GDP growth to moderate to 6.7% in the fiscal year from 7.7% in FY26, with risks tilted to the downside amid continued tensions in West Asia and monsoon-related uncertainty. However, the nominal GDP expansion is projected to accelerate to a four-year high of nearly 13% in FY27 from 8.9% in FY26, amid expectations of a hardening in the inflation prints,” Nayar added.
