Q1 GDP Preview: Is India's Economy Slowing? April-June Qtr GDP Growth Rate Likely Under Scrutiny

India's economy is poised for a modest slowdown in the first quarter of FY 2025-26, with economists forecasting a range of 6.6% and 6.7%, with the more optimistic SBI nowcast stretching upwards to 7%. Growth is underpinned by robust government capital expenditure, rural demand, and an active services semoctor, supported in some forecasts by reforms like GST rationalization.

However, weak industrial output, subdued private investment, and strained urban consumption pose risks. But more importantly, external headwinds like U.S. tariffs further dampen the momentum, prompting caution. With the implementation of US tariffs on items from India, all eyes will be on the upcoming GDP Q1FY26 data, set to be released on Friday, August 29.

The United States has increased tariffs on Indian imports to as much as 50%, following India's purchase of Russian oil. This move, effective from Wednesday, adds a punitive 25% tariff to the existing 25% on various goods such as garments, jewellery, and chemicals. The decision could severely impact Indian exporters and jobs, especially in Gujarat, and may slow down growth in India's rapidly expanding economy.

"India has relatively low goods export exposure to the US (around 2% of GDP). However, a tariff rate significantly higher than peer economies could erode India's market share and amplify the indirect impact. Nonetheless, we remain hopeful of a resolution in the coming months that would bring India's tariff closer to that of peer economies such as Vietnam and Indonesia, reducing the tariff to less than 20% which is our base case scenario," said Rajani Sinha, chief economist at CareEdge Ratings.

"Under scenario 1, GDP growth for FY26 is projected at a healthy 6.4%, with the RBI expected to maintain policy rates at current levels. In Scenario 2, we assume the removal of secondary sanctions for Russian crude imports, bringing the tariff down to 25%. In Scenario 3, we assume the continuation of a 50% tariff, leading to a sharper growth impact of 0.8-1 percentage point annually. Such a scenario would likely warrant stronger policy support from the RBI, including more accommodative monetary measures."

Despite the slowdown, India is expected to remain resilient compared to global peers, supported by an accommodative monetary policy, underlying domestic demand, and buffered by structural reforms.

Overall, expect Q1 GDP growth in the range of 6.6-6.9%, with nuanced differences by forecast models. The forthcoming official data on August 29 from the National Statistical Office will provide a clearer picture.

"Peak Elasticity of Government Capex to GDP at 1.17, indicating that private investment must complement public investment to take the economy onto an even higher sustainable growth path: Private investors need to hold the baton NOW, going GLO-CALLY competitive as Apostles of Growth 2.0 world over," according to a research note by SBI who now forecasts GDP growth at 6.9% (GVA: 6.5%) year-on-year for the April-June quarter.

Despite the threats, India is on track to become the world's second-largest economy in terms of purchasing power parity (PPP) by 2038, with an estimated GDP of USD 34.2 trillion, according to a report by EY. This prediction is based on projections from the International Monetary Fund (IMF). India's unique position among major economies is highlighted by its young population and strong economic indicators.

Fitch Ratings reasserted its 'BBB-' rating for India, reaffirming expectations for 6.5% GDP growth in FY26, while noting the moderating impact of U.S. tariff risks. Proposed GST reforms may help offset these risks.

IMF projects India's calendar-year growth at 6.4% for 2025-2026, maintaining its position as the world's fastest-growing major economy.