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India's GDP Growth to Moderate to 7.2% in Q3 FY26, Says ICRA

Rating agency ICRA projects India's year-on-year GDP growth will moderate to 7.2% in the third quarter of FY2025-26, down from 8.2% in the previous quarter. This slowdown is attributed to a deceleration in the services and agriculture sectors, despite an improved industrial performance reaching a six-quarter high. Key factors include an unfavourable base effect, a contraction in government capital spending, and subdued state government revenue expenditure. However, healthy festive season demand likely kept overall growth above the 7% mark.

Key Points: India Q3 FY26 GDP Growth Seen at 7.2% by ICRA

  • GDP growth seen moderating to 7.2%
  • Services & agriculture expansion slows
  • Industrial sector performance hits six-quarter high
  • Government capital spending contracts
2 min read

India's GDP growth to moderate to 7.2% in Q3FY26: ICRA

ICRA projects India's GDP growth to ease to 7.2% in Q3 FY26 from 8.2% in Q2, citing slower services, agriculture despite industrial pick-up.

"We project the GDP growth to have eased to 7.2% in Q3 2025-26 from 8.0% in the first half of the fiscal. - Aditi Nayar"

New Delhi, February 22

Rating agency ICRA has projected India's year-on-year GDP growth to moderate to 7.2 per cent in the third quarter of FY2025-26, compared with 8.2 per cent recorded in Q2 FY2025-26, citing slower expansion in services and agriculture despite improved industrial performance.

Lower expansion in the services (+7.8% in Q3 2025-26 against +9.2% in Q2 2025-26) and agriculture (+3.0% in Q3 2025-26 against +3.5% in Q2 2025-26) sectors is likely to outweigh a pick-up in the performance of the industrial sector (six-quarter high of +8.3% in Q3 2025-26 against +7.7% in Q2 2025-26), the report said.

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA said, "An estimation of GDP growth as per the new base year is challenging at present. We have anchored the outlook for Q3 to the existing GDP dataset across the sectors of the economy, based on which we project the GDP growth to have eased to 7.2% in Q3 2025-26 from 8.0% in the first half of the fiscal. The reasons for the estimated sequential slowdown include an unfavourable base effect, contraction in Government capital spending, subdued state government revenue expenditure, and weak merchandise exports. Nevertheless, healthy demand during the festive season, boosted by GST rationalisation, likely kept the pace of growth above 7% in the said quarter."

ICRA estimates the YoY growth in the services gross value added (GVA) to moderate to 7.8% in Q3 2025-26 from 9.2% in Q2 2025-26, dampened by lower expansion in Government spending and services exports. After the frontloading seen in H1 2025-26 (+40.0% YoY), the Government of India's (GoI's) gross capital expenditure contracted by 23.4% in Q3 2025-26 (+47.7% in Q3 2024-25), albeit on a high base. In absolute terms, capex dipped to Rs. 2.1 trillion in Q3 2025-26 from Rs. 3.1 trillion in Q2 2025-26.

Further, the YoY contraction in the GoI's non-interest revex narrowed to 3.5% on a YoY basis in Q3 2025-26 from 11.2% in Q2 2025-26. However, the YoY growth in the combined non-interest revex of the aforementioned 24 state governments eased to 2.7% in Q3 2025-26 from 7.3% in Q2 2025-26. Taken together, the Central and state noninterest revenue spending inched up marginally by 0.3% on a YoY basis in Q3 2025-26, as opposed to the 0.6% decline seen in Q2 2025-26.

The YoY expansion in India's services exports eased slightly to a seven-quarter low of 7.5% in Q3 2025-26 (USD 111.2 billion) from 8.7% in Q2 2025-26 ($101.6 billion), mainly due to an unfavourable base, the report said.

- ANI

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Reader Comments

P
Priya S
The slowdown in agriculture growth to just 3% is the real story here. With so much of our population dependent on farming, this needs urgent policy focus. Monsoon performance will be critical. 🚜
R
Rohit P
Industrial sector hitting an 8.3% growth is excellent news! 🎉 Shows the 'Make in India' push is working. If services can bounce back, we can easily cross 8% again. The festive season demand always gives a boost.
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Sarah B
As someone watching from abroad, India's consistent 7%+ growth is impressive. The note about services export growth easing is something to monitor, given its importance for the IT sector and forex earnings.
K
Karthik V
The report mentions "unfavourable base effect" – this is a technical point but very important. We had very high growth in the same quarter last year, so maintaining 7.2% against that is actually not bad. Context matters.
M
Meera T
While the headline number is good, the slowdown in state government spending is concerning. Health, education, and rural development often depend on state budgets. Hope this is a temporary dip and not a trend.

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