India’s GDP growth to ease to 7.2% in Q3FY26: ICRA
Lower expansion in services (+9.2% in Q2 2025-26 vs +7.8% in Q3 2025-26) and agriculture (+3.5% in Q2 2025-26 vs +3.0% in Q3 2025-26) is likely to outweigh the recovery in the performance of the industrial sector (+8.3% in Q3 2025-26 over six quarters). highest level). 2025-26 compared to +7.7% in the second quarter of 2025-26), the report stated.
Aditi Nayar, Chief Research and Outreach Economist, ICRA, said: “The forecast of GDP growth by the new base year is currently challenging. We have pegged the outlook for Q3 to the existing dataset of GDP across sectors of the economy, based on which we project GDP growth to decline from 8.0% in the first half of the financial year to 7.2% in the third quarter of 2025-26.”
“The reasons for the predicted sequential slowdown include unfavorable base effect, contraction in Government capital expenditure, lower state government revenue expenditure and weak goods exports. However, healthy demand during the festive season supported by GST rationalization is likely to have kept the growth rate above 7% in the quarter in question.”
ICRA estimates annual growth in services gross value added (GVA) to be moderate, from 9.2% in the second quarter of 2025-26 to 7.8% in the third quarter of 2025-26, driven by Government expenditure and lower expansion in services exports. Following the bootstrapping seen in the first half of 2025-26 (+40.0% y-o-y), the Government of India’s (GoI’s) gross capital expenditure contracted by 23.4% in the third quarter of 2025-26 (+47.7% in the third quarter of 2024-25), albeit at a higher base. In absolute terms, capex has fallen to Rs. 2.1 trillion in the third quarter of 2025-26 from Rs. 3.1 trillion in the second quarter of 2025-26.
Moreover, the annual contraction in GoI’s non-interest yield narrowed to 3.5% on an annual basis in the third quarter of 2025-26 from 11.2% in the second quarter of 2025-26. However, the annual growth in the combined non-interest yield of the above-mentioned 24 state governments declined to 2.7% in the third quarter of 2025-26 from 7.3% in the second quarter of 2025-26. Taken together, Central and state non-interest revenue expenditure increased marginally by 0.3% on an annual basis in the third quarter of 2025-26, compared to a decline of 0.6% in the second quarter of 2025-26.
The report stated that annual growth in India’s services exports fell from 8.7% ($101.6 billion) in the second quarter of 2025-26 to 7.5% in the third quarter of 2025-26 ($111.2 billion), the lowest level in the last seven quarters.
