ICRA Projects 6.5% GDP Growth for India in FY26
ICRA expects India's GDP to grow by 6.5% in FY26, driven by urban demand revival, capex growth, and strong rural consumption
Chennai: ICRA estimates India’s GDP to grow by 6.5 per cent in FY26 against 6.3 per cent expected in FY25 as urban demand is likely to revive and the capex deployment by central and state governments may spur investment activity.
Rural demand is expected to remain upbeat in FY26, aided by farm cash flows from the Rabi harvest and above-normal reservoir levels which would provide some insurance against a delayed start or inadequate rainfall in the early part of the monsoon season. Overall, ICRA expects the agri Gross Value Added (GVA) growth at 3.5-4 per cent in FY26 after a 4.6 per cent rise estimated in FY25.
While urban consumption remained muted in FY2025, the combination of income tax relief announced in the Union Budget, rate cuts leading to lower EMIs, and an expected moderation in food inflation is likely to boost household disposable incomes and discretionary consumption in FY2026, auguring well for sectors like automobiles, consumer goods and services.
The growth in capex deployment by centre and states can be a big support. The 17 per cent uptick in the Centre’s effective capex in FY26 budget estimate and uptick in the outlay towards the 50-year interest-free capex loan to state governments is likely to augur well for construction activity and GDP growth, even as early execution remains key. Additionally, the budgets of 11 states released so far have indicated a healthy growth of 21 per cent in their combined capital expenditure to Rs 6 lakh crore in FY26.
Further, the outlook for residential real estate appears healthier for FY2026, amid the onset of the rate cut cycle, income tax relief in the Union Budget FY2026, and sustained demand.
However, external demand may remain subdued in FY26, owing to the risks of potential trade wars, redirection of trade flows, disruption of supply chains, as well as weakness in the rupee. This is likely to adversely impact India’s merchandise exports in FY26. The private capex cycle would remain non-exuberant, owing to external headwinds arising from protectionist trade policies as well as exchange rate volatility.
