India’s GDP Likely To Grow 7 Per Cent In Q2 FY26 As Industry Outperforms Services: ICRA Report

New Delhi, Nov 17: India's GDP expansion is expected to reach a robust 7 per cent in the second quarter of the current financial year (Q2 FY26) from 7.8 per cent in the April-June period (Q1 FY26), a report said on Monday. Further, the growth in the gross value added (GVA) is expected to record a narrower dip to 7.1 per cent from 7.6 per cent, respectively.

Services and Agriculture Growth Moderates; Industry Strengthens

"Lower expansion in the services sector-- 7.4 per cent in Q2 FY26 from 9.3 per cent in the first quarter this fiscal, and agriculture-- 3.5 per cent from 3.7 per cent, is likely to outweigh a pick-up in the performance of the industrial sector to a five-quarter high 7.8 per cent from 6.3 per cent," ICRA said in its report.

Net Indirect Taxes Likely to Contract

The report estimated net indirect taxes (in nominal terms) to contract on a year-on-year (YoY) basis in the quarter under review, after having risen by 9.5 per cent in Q1 FY26, aided by the decline in indirect taxes to -5.2 per cent from 11.3 per cent in Q1 FY2026, amid the shallower contraction in its subsidies to -4.6 per cent from -7.3 per cent.

Accordingly, the gap between the GDP and the GVA growth is expected to revert to the negative territory at 10 bps in Q2 FY2026, after being positive (18 bps) in the previous quarter.

Government Spending Rise Moderates Growth Momentum

“A lower YoY rise in Government spending is likely to weigh on the pace of the GDP and GVA growth in Q2 FY2026 compared to Q1 FY2026," said Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA.

"However, inventory stocking related to the early onset of the festive season, enhanced by the GST-rationalisation induced volume pickup, and upfronting of exports to the US ahead of the tariffs, are expected to boost the performance of the manufacturing sector, and help industry GVA growth outpace that of the services after a gap of four quarters,” she added.

Capital Expenditure Growth Moderates on High Base

On an enlarged base, the growth rate of the gross capital expenditure moderated to 30.7 per cent in Q2 FY2026 (10.3 per cent in Q2 FY2025) from 52.0 per cent in Q1 FY2026 (-35.0 per cent in Q1 FY2025).

Simultaneously, in absolute terms, the monthly average capex rose to Rs. 1,019 billion in Q2 from Rs. 917 billion in Q1, the report noted.

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On average, the monthly capex rose to Rs 544 billion in Q2 FY2026 from Rs 378 billion in Q1 FY2026, which is around half of the government's level, the report noted.

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