India's Q1 FY27 GDP growth likely slowed to 7% on weaker manufacturing, services: ICRA

India’s economic growth is likely to have moderated to 7% in the April-June quarter of 2026-27, from 7.8% in the preceding quarter, amid slower expansion in manufacturing and services, rating agency ICRA said on Monday.

ICRA has projected real GVA growth at 7.2% in the first quarter of FY27, down from 7.9% in the January-March quarter. It has retained its full-year GDP growth forecast at 6.7%.

The agency said domestic volume indicators across the industrial and services sectors remained healthy during the quarter despite concerns over higher commodity prices arising from the West Asia conflict.

However, profitability of a large group of non-financial companies weakened, mainly due to sizable losses in oil refining companies.

"ICRA projects the real GVA expansion ... to ease to 7.2% in Q1 FY2027 from 7.9% in Q4 FY2026. Amid likely compression in net indirect taxes on products, we peg the expansion in GDP at 7.0%," it said.

The estimate is in line with the Reserve Bank's Monetary Policy Committee forecast for the quarter.

ICRA has projected GVA growth in agriculture, forestry and fishing at 4% in Q1 FY27, up from 3.6% in the previous quarter.

The agency cited strong rabi production, with output of coarse cereals estimated to have risen 25% year-on-year in 2025-26, while oilseeds, pulses and rice output grew between 9% and 12%.

Industrial GVA growth is estimated to improve to 7.7% from 7.3%, helped by mining, electricity and construction.

However, manufacturing GVA growth is projected to slow to around 6% from 7.3% because of margin pressures caused by higher input costs.

Manufacturing output itself grew 6.3% in Q1 FY27, its fastest pace in six quarters, while overall industrial production expanded 5.8%, up from 3.8% in the previous quarter. ICRA said higher input costs, however, are likely to constrain industrial GVA growth.

Services GVA growth is expected to moderate sharply to 7.9% in Q1 FY27 from 9.9% in Q4 FY26, as most indicators related to transport, mobility and public spending decelerated.

Strong services exports, housing sales and financial-sector indicators provided some support.

Capital spending by the Centre rose 23.7% year-on-year, while that of 24 state governments increased 5%.

Merchandise exports also grew 15.9% to USD 129.3 billion in Q1 FY27.

ICRA said the outlook for the rest of FY27 faces downside risks from weak monsoon conditions and prolonged geopolitical conflict.

It has assumed an average crude oil price of $80-85 per barrel for the fiscal and expects GDP growth to slow to 6.7% in FY27 from 7.7% in FY26.

The agency said the renewal of tensions in West Asia could keep crude prices above pre-conflict levels, weighing on investment, corporate profitability and consumer sentiment.

It also warned that deficient rainfall and the development of El Nino conditions could hurt agricultural and rural demand prospects in the second half of FY27.