Daijiworld Media Network - New Delhi
New Delhi, Aug 19: India's economy is expected to grow at a faster-than-anticipated pace in the first quarter of the current fiscal year (FY26), with credit rating agency ICRA projecting a 6.7% expansion—surpassing the Reserve Bank of India’s Monetary Policy Committee (MPC) forecast of 6.5%.
According to ICRA's latest report, the country’s Gross Value Added (GVA) is likely to register a 6.4% growth in Q1 FY26. The projection is buoyed by strong government spending, early export gains, improved consumption signals, and a boost in tax collections.
“Benefitting from robust government capital and revenue expenditure, upfronted exports to select regions, and emerging signs of stronger consumption, the pace of expansion in Q1 FY26 is estimated at 6.7%,” said Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA.
A notable driver is the double-digit growth in net indirect taxes, with government collections rising by 11.3% in Q1 FY26, compared to a 3.1% contraction in Q4 FY25. This surge came despite a more modest decline in government subsidy expenditure.
The services sector is expected to be a key contributor, with its GVA growth projected to rise to 8.3% in Q1—an eight-quarter high—up from 7.3% in the previous quarter.
State-level spending also played a significant role. Non-interest revenue expenditure across 24 states saw a year-on-year (YoY) increase of 10.7% in Q1, accelerating from 7.2% in Q4 FY25. Similarly, the central government’s non-interest revenue expenditure reversed its earlier decline, rising 6.9% YoY in Q1 after a 6.1% drop in Q4 FY25.
Urban consumption is expected to get a further lift from the anticipated GST rationalisation and the positive effects of monetary policy transmission. Meanwhile, rural sentiment continues to improve, as seen in the RBI’s July 2025 Rural Consumer Confidence Survey, with the Current Situation Index (CSI) climbing to 100.6. This uptick is attributed to strong farm output in recent cropping seasons, optimism for the ongoing kharif season, and easing rural inflation.
The upbeat projections signal solid momentum for the Indian economy as it heads into the festive season.