India’s Q1 FY26 GDP Growth Expected at 6.7%, Outpaces RBI Forecast: ICRA
New Delhi, Aug 19 (TheTrendingPeople.com) – India’s economy is projected to grow at 6.7 per cent in the first quarter of FY26, according to credit rating agency ICRA, outpacing the Reserve Bank of India (RBI) Monetary Policy Committee’s (MPC) recent growth forecast of 6.5 per cent.
The report highlights strong contributions from government spending, upbeat rural and urban demand, and robust service sector performance, setting the stage for a promising start to the fiscal year.
GVA Growth at 6.4% in Q1 FY26
ICRA estimates gross value added (GVA) growth at 6.4 per cent in Q1 FY26, supported by higher government expenditure and early signs of improving consumption.
“Benefitting from robust government capital as well as revenue spending, upfronted exports to some geographies and nascent signals of improved consumption, the pace of expansion in economic activity in Q1 FY2026 is estimated at 6.7 per cent,” said Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA.
Services Sector at Eight-Quarter High
One of the standout performers is the services sector, which is estimated to grow at 8.3 per cent in Q1 FY26, an eight-quarter high, compared to 7.3 per cent in Q4 FY25. This surge is expected to provide significant support to overall GVA expansion.
ICRA attributes this to higher government spending and a revival in consumption demand across urban and rural markets.
Fiscal Push: Centre and States Step Up Spending
The report underscores the strong role of both central and state governments in boosting demand through expenditure:
- 24 state governments recorded a double-digit 10.7 per cent YoY growth in non-interest revenue expenditure in Q1 FY26, up from 7.2 per cent in Q4 FY25.
- The Central government’s non-interest revenue expenditure also bounced back, recording a 6.9 per cent YoY growth, reversing a contraction of 6.1 per cent in the previous quarter.
These figures reflect an expansionary fiscal stance aimed at supporting growth momentum.
Indirect Taxes Drive Growth
ICRA expects double-digit growth in net indirect taxes, aided by the sharp uptick in the Government of India’s indirect tax collections.
“ICRA estimates a double-digit growth in net indirect taxes (in nominal terms), aided by the sharp uptick in the government of India's indirect taxes (+11.3 per cent in Q1 FY26 from -3.1 per cent in Q4 FY2025), despite the narrower contraction in its subsidy outgo,” Nayar explained.
The announcement of forthcoming GST rationalisation is also expected to bolster urban consumption sentiments ahead of the festive season.
Rural Sentiments on the Upswing
The rural economy is also showing positive signs. The Current Situation Index (CSI) in the RBI’s Rural Consumer Confidence Survey for July 2025 stood at 100.6, reflecting an improvement in rural sentiment.
This rise is attributed to:
- Favourable trends in farm output from the last two cropping seasons.
- An upbeat outlook for the ongoing kharif season.
- A considerable cooling in rural CPI inflation.
These factors suggest stronger rural demand in the coming quarters, complementing urban consumption.
Outlook: Growth Momentum to Continue?
India’s stronger-than-expected Q1 FY26 growth projection reflects the economy’s resilience despite global headwinds. With government spending, healthy tax collections, and robust service activity driving expansion, momentum could carry forward into the festive season.
However, economists caution that sustaining growth will depend on global demand stability, monsoon performance, and the pace of monetary transmission.
Final Thoughts from TheTrendingPeople.com
India’s Q1 FY26 growth projection of 6.7 per cent underscores the strength of domestic demand and policy support in cushioning the economy against global uncertainties. The service sector revival, rural confidence, and fiscal push have combined to create a solid foundation for the fiscal year.
But challenges remain. Inflationary risks, geopolitical uncertainties, and the need for structural reforms will continue to test India’s growth trajectory. For now, though, the ICRA forecast suggests India remains firmly on track to remain one of the fastest-growing major economies in the world.