SBI Research raises FY27 GDP growth forecast to 7.3% after Q1 growth at 7.8%

SBI Research has raised its forecast for India's real GDP growth in FY27 to 7.3% from 6.6% earlier, citing resilient domestic demand and improving high-frequency indicators after the economy grew 7.8% in the first quarter.

In its latest Ecowrap report, SBI Research said growth momentum was supported by industrial production, services activity, credit demand and investment spending, along with resilient consumption.

The Ministry of Statistics and Programme Implementation (MoSPI) said that the real GDP, measured at constant 2022-23 prices, is estimated at ₹81.36 lakh crore in the first quarter of the current fiscal, up from ₹75.46 lakh crore in the year-ago period.

Nominal GDP at current prices grew 10.3% to ₹88.27 lakh crore in Q1 FY27 from ₹80 lakh crore a year earlier.

Services remained the best-performing sector, expanding 10% in the first quarter, led by 12.1% growth in financial, real estate and professional services and 8.5% in trade, hotels, transport and communication services.

SBI Research expects GDP growth at 7.3% in the second quarter, 7.2% in the third quarter and 6.9% in the fourth quarter of FY27.

It said the moderation from the first quarter's 7.8% would largely reflect normalisation from a strong base rather than a loss of underlying momentum.

On the expenditure side, private consumption grew 7.1% in Q1, while capital formation grew 11.9%.

The report, however, flagged some complexities in interpreting the first-quarter numbers amid the West Asia conflict and policy measures, including curbs on gold imports and partial transmission of energy prices.

SBI Research also noted that the GDP deflator rose to 2.3% in Q1 FY27 from 1.1% a year earlier, while the GVA deflator increased to 3% from 1.1%.

The manufacturing deflator turned negative at minus 1.4%, suggesting input prices were rising faster than manufacturers' output prices.

The research report raised the possibility of monetary policy action, saying robust credit growth globally, particularly in Asian emerging markets, could prompt central banks to consider rate moves.

"Mint Street" could pursue a "shallow yet front loaded rate hike" amid the improving growth momentum and emerging price pressures, it said.

SBI Research said the FY27 Budget has pegged the fiscal deficit at ₹16.96 lakh crore, or 4.5% of GDP on the new GDP base.

Assuming nominal GDP growth of 10%, it estimated the fiscal deficit could be around 4.6% of GDP, while the Centre's debt-to-GDP ratio could be 57.1%.