GDP growth may ease in H2, but no cause for alarm

The National Statistical Office’s (NSO) First Advance Estimates (FAE) pegged India’s GDP and Gross Value Added (GVA) growth at 7.4 per cent and 7.3 per cent respectively, for the current fiscal.

According to ICRA, a potential contraction in government’s capital expenditure (capex), the adverse impact of US tariffs on merchandise exports across several sectors, and an unfavourable base could moderate GDP growth in H2.

However, the reasons for concern are limited. Growth in the industrial and agricultural sectors is likely to perform somewhat better than the NSO’s implicit estimate for the second half, while services growth may to trail slightly.

Nominal GDP is likely to expand by 8.0 per cent in the year. Notably, the FAE for the nominal GDP for the year is pegged at Rs 357.1 trillion, broadly in line with the assumptions made in the Union Budget for this year. This, rules out any significant deviation in the fiscal deficit-to-GDP ratio due to changes in the denominator.

Experts do not expect any fiscal slippage beyond the targeted 4.4 per cent of GDP, as higher-than-budgeted non-tax revenues and likely expenditure savings would provide a buffer against the expected miss on taxes.

Historically, the gap between Reserve Bank of India’s (RBI) estimates and those of the NSO has remained within in the range of 20-30 basis points. Against this backdrop, the 7.4 per cent growth projection appears expected and reasonable.

According to SBI’s internal research, GDP growth for the year could be around 7.5 per cent, with an upward bias. On the expenditure side, government consumption has been a key positive contributor, registering a real growth of 5.2 per cent.

Exports have also remained resilient, posting a growth of 6.4 per cent. Private consumption growth was tad lower at 7.0 per cent, possibly due to slowdown in agricultural sector. Per capita consumption expenditure registered a growth of 6.1 per cent. Uptick in government spending, traction in services has held up demand in FY26, cushioning the impact of external headwinds.

Analysts believe that while tax revenues may fall short of budgeted levels, higher non-tax revenues will largely offset this, keeping overall receipts broadly on track.

Total expenditure is also expected to be lower, resulting in a fiscal deficit of Rs 15.85 lakh crore compared to the budgeted Rs 15.69 lakh crore.

With the revised GDP figures, fiscal deficit as a percentage of GDP is likely to remain unchanged at 4.4 per cent. Despite geopolitical uncertainty and a turbulent global landscape, India’s growth story shows strong signs of resilience.

The government’s sustained focus on strengthening supply-chain resilience, accelerating structural reforms, and scaling up infrastructure creation, according to PHDCCI, is expected to further reinforce India’s growth trajectory.

These measures, combined with a strong macroeconomic framework and rising private investment, are likely to support long-term development momentum and position the economy for sustained and resilient growth.