Services Sector Should Have Pulled Down Q1 GDP Growth To 7 pc: ICRA
ICRA estimates the industrial GVA growth to have risen to 7.7% in Q1 2026-27 from 7.3% seen in Q4 2025-26, led by all sub-sectors, barring manufacturing
Chennai: The slowdown in the services sector is expected to have eased the GDP growth to a four-quarter low of 7% in the June quarter of FY27 from 7.8 per cent in the March quarter of FY26.
The slowdown is expected to be caused by the services sector growth eased to 7.9 per cent in Q1 FY27 from 9.9% in Q4 FY26.
ICRA estimates a broad-based deceleration across all sub-sectors of services. As per the newly released data by the Ministry of Statistics and Programme Implementation, the year-on-year growth in 18 of the 19 Indices of Services Production eased in the first two months. Besides, business sentiments of services companies weakened materially in Q1 2026-27, with the pace of optimism dipping to the lowest level in five years, amid headwinds owing to the West Asia crisis as well as persistent wage cost pressures.
The YoY performance of a majority of transport and mobility-related indicators moderated in Q1 FY27 against Q4 FY26, including consumption of petrol, diesel, and aviation turbine fuel, rail freight traffic, GST e-way bill generation, and commercial vehicle sales, even as the deterioration in some of these was partly driven by an unfavourable base. While service export growth improved between these quarters, the residential area sold in the top seven cities expanded at a slightly slower pace.
However, industrial growth and agricultural growth is expected to have improved between these quarters.
ICRA estimates the industrial GVA growth to have risen to 7.7% in Q1 2026-27 from 7.3% seen in Q4 2025-26, led by all sub-sectors, barring manufacturing. As per the Index of Industrial Production data, while mining output remained in the contractionary zone in Q1, the extent of the same eased to 1.4% in the quarter from 1.8% in Q4 2025-26, as large rainfall deficit in June 2026 allowed an extended period for mining activity. The manufacturing GVA growth would have moderated to 6.0% in Q1 2026-27 from 7.3% in Q4 2025-26, the lowest growth print since Q2 2024-25.
The GVA growth of agriculture, forestry and fishing is expected to have grown by a healthy 4.0% in Q1 2026-27, up from 3.6% in Q4 2025-26, even as the disruption related to the uneven monsoons would affect the performance in the subsequent quarters.
