India’s GDP growth pegged at 6.9% in Q1 FY26; private sector must ‘hold the baton’: SBI Research

India’s economy is expected to grow at 6.8%-7.0% in the April-June quarter of FY26, supported by resilient domestic demand, even as a moderation from the previous quarter is visible, according to SBI Research.

The State Bank of India’s research arm, in its latest report, said the Gross Value Added (GVA) growth is estimated at 6.5% for the quarter.

“Based on the estimated model, we obtain a nowcast of real GDP growth at 6.9% (GVA: 6.5%) year-on-year for the reference quarter (Q1 FY26),” the report said.

“This estimate reflects the systematic contribution of the latent factor to the observed series and is not driven by idiosyncratic fluctuations,” it said, adding that the trajectory remains consistent with India’s medium-run growth path.

The report highlighted that the “peak elasticity of government capital expenditure to GDP has reached 1.17,” stressing that private investment must now complement public capex to drive sustainable growth.

“Private investors need to hold the baton now, going glo-cally competitive as Apostles of Growth 2.0 world over,” it said.

The International Monetary Fund (IMF) has revised its growth projections upward, pegging world GDP expansion at 3% in 2025 and 3.1% in 2026, largely reflecting front-loading ahead of tariff materialisation.

China’s 2025 growth outlook has been raised by 80 basis points to 4.8%, while India’s was revised up by 20 basis points to 6.4%.

The report noted that while global trade was robust in Q1, high-frequency indicators suggest some unwinding of front-loaded activity in Q2. Inflation globally shows mixed trends, with US inflation likely to remain above target amid geopolitical and tariff-related risks.

India’s nominal GDP growth could soften to about 8% in Q1 FY26 as the gap between real and nominal GDP narrows due to historically low inflation, SBI Research said. The gap, which was as high as 12 percentage points in Q1 FY23, has dropped sharply to 3.4 percentage points by Q4 FY25.

Bank credit growth moderated to 10% as of July 25, 2025, compared with 13.7% last year, though credit to MSMEs surged 21.8% year-on-year. Aggregate deposits grew 10.2%. Excluding bank credit, resource flow to the commercial sector expanded at a healthy 15.6% in Q1 FY26.

SBI Research pointed out that lower inflation expectations are supporting discretionary spending, with consumer confidence improving on the back of easing price pressures across food, housing and non-food categories.

Agriculture, meanwhile, has been aided by an early onset of the monsoon, with cumulative rainfall so far 2% above normal at the all-India level, though with wide regional disparities. Kharif sowing touched 1,040 lakh hectares till August 15, registering 3.7% growth over last year.

“Given the fresh resumption of tariffs on Indian exports, we expect that earnings outlook will be negative for the next two quarters. However, GST 2.0 can give fillip to consumption oriented sector and offset the impact,” SBI Research said.