Key Takeaways
- Crisil revises India’s FY26 GDP growth forecast upward to 7% from 6.5%
- Strong 8% growth in H1 FY26 driven by private consumption and manufacturing
- Economist warns of risks from slowing nominal GDP growth despite positive outlook
India’s economic outlook has brightened significantly as Crisil Limited upgraded its GDP growth forecast for FY26 to 7%, up from the previous 6.5% estimate. This revision follows a robust 8% economic expansion in the first half of the financial year, powered by strong private consumption and improved performance in manufacturing and services.
Quarterly Performance Exceeds Expectations
Dharmakirti Joshi, Chief Economist at Crisil Limited, revealed that India’s real GDP growth reached 8.2% in the second quarter, surpassing expectations despite moderate nominal GDP growth of 8.7%. He highlighted that the gap between real and nominal GDP has narrowed to its smallest level since Q3 FY2020.
“Manufacturing and services sectors also showed significant improvement from the supply side,” Joshi stated. “A favourable statistical base — since the economy grew only 5.6% in the same quarter last year — also supported higher growth numbers.”
Inflation Decline Boosts Spending
Easing inflation provided additional momentum, with both CPI and WPI inflation declining in the second quarter compared to the first. The reduction in food inflation particularly boosted discretionary consumer spending, while a lower deflator contributed to the growth lift.
Positive Factors Driving Q3 Outlook
The third quarter is expected to benefit from continuing positive trends. While government investment is likely to stabilise, early indications suggest a pickup in private investment is emerging. GST rate rationalisation and reductions, combined with income tax and interest rate cuts, are further encouraging private consumption.
The interest rate reductions follow repo rate cuts implemented by the Reserve Bank of India’s Monetary Policy Committee earlier this year.
Second Half Slowdown Expected
Despite the upward revision, Crisil’s 7% growth projection accounts for a softer second half, where GDP expansion is expected to slow to 6.1%. This anticipated moderation stems from the impact of higher US tariffs and the normalisation of government capital expenditure.
Joshi cautioned that risks remain, particularly from slow nominal GDP growth driven by sharply falling inflation. The economy faces the challenge of maintaining momentum amid these evolving conditions.
