India’s FY27 Growth Forecast Raised to 7% After GDP Expands 7.8% in Q1

India’s stronger start to FY27 has prompted economists to raise their growth forecasts for the full year. The economy expanded by 7.8% in the April-June quarter, leading India Ratings & Research and HDFC Bank to revise their projections to around 7% from 6.8%.  

The quarterly figure announced by the government on August 31 comfortably beat the Reserve Bank of India’s projection of 7%. Growth had been 6.9% in the corresponding quarter of the previous year. 

India Ratings & Research now expects FY27 growth to cross 7%. Its Chief Economist, Devendra Pant, said the revised assessment also factors in the monsoon’s performance during the Kharif season. With rainfall conditions broadly holding up, the agency sees a lower risk to rural demand.  

Gross capital formation rose 11.9% during the quarter, while exports grew 12% and imports contracted. 

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Pant pointed to continued spending by the government and public sector. Aggregate capital expenditure by the Centre, states and public sector enterprises grew 16.9% during the quarter, compared with 14.1% a year earlier. Private consumption expenditure rose 7.1%, above the trailing eight-quarter average of 6.8%. 

HDFC Bank had anticipated a 7.5% growth in the economy during the quarter. Having seen 7.8%, the bank raised its full-year projection to 7% from 6.8%. 

Sakshi Gupta, Vice President and Principal Economist at HDFC Bank, said the growth was driven by domestic consumption, government spending, investment and exports. Volume growth in sectors such as manufacturing helped offset the input-cost pressure arising from the West Asia conflict. Electricity and gas grew by close to 9%, while financial, real estate and professional services expanded by 12%  

Gross value added (GVA) rose 8.2% during the quarter, outpacing the headline GDP growth rate of 7.8%. 

Manufacturing GVA surged to 9.2% from 7.9% in the preceding quarter. Aditi Nayar, Chief Economist at ICRA Ltd, said the improvement was due to stronger volume growth despite an unfavourable base. Services recorded double-digit growth for the third quarter in succession.  

Prof Charan Singh, Economist and CEO of EGrow Foundation, said services grew by 10%, while agriculture expanded by 3.6%. The secondary sector recorded growth of around 8.6%, although the weaker performance of construction prevented it from registering a better result.  

Steel consumption, cement production and commercial vehicle sales were among the high-frequency indicators cited by Singh as performing strongly. He said India has the capacity to grow above 9% with firm policy and a focused strategy. 

Rumki Majumdar, Economist at Deloitte India, highlighted the 11.9% increase in gross fixed capital formation as a key takeaway from the quarterly data. The figure was more than double the 5.8% growth recorded in the same period last year. Further, she pointed to the combination of stronger capital formation, 9.2% manufacturing growth and firm capital-goods production as evidence that the investment cycle was becoming more tangible. Rising corporate profitability and industrial credit could also encourage broader private-sector participation. 

Pant also flagged the effect of the West Asia crisis on fertiliser subsidies. Fertiliser subsidy growth stood at 57.6% during the quarter, compared with 47.4% a year earlier. 

Nominal GDP growth accelerated to 10.3%, marking its highest reading in eight quarters. At the same time, the implicit GDP deflator increased to 1.77% from 1.19% in the preceding quarter. Rumki Majumdar of Deloitte India said a further rise in inflation could push the deflator higher, with potential implications for tax collections, corporate revenues and debt sustainability