India is set to announce its Q3FY26 GDP data tomorrow. The data is keenly awaited as it will mark the debut of a new GDP series with FY23 as the base year. Along with the base year revision, the new GDP data will also incorporate GST data to improve the accuracy of state-level GDP estimates.
Most economists and research houses expect the GDP reading to come below the 8% mark. However, IDFC First Bank is estimating real GDP growth to increase to 8.7%. This would be significantly higher than even Q2 performance.
What could support such a strong projection? Here are several factors highlighted by IDFC First Bank that are contributing to the growth outcome this time.
#1. Rural, urban demand to drive growth: IDFC First Bank
IDFC First Bank expects growth to be supported by both rural and urban demand. It noted that rural demand has picked up on the back of strong crop output and a rise in real wage growth. Better agricultural performance and improving incomes have helped stabilise consumption in rural areas.
Urban demand also gained pace during the quarter, supported by a GST cut that coincided with the festive season. The recovery in consumption is expected to sustain, with visible improvement in real wages across both rural and urban segments.
#2. Manufacturing and services gain momentum
IDFC First Bank highlighted that both manufacturing and services showed stronger growth trends in Q3FY26. The manufacturing sector-listed companies reported a sharp improvement, with nominal GVA growth rising to 16% year-on-year (YoY) in Q3FY26, compared with 10.5% in Q2FY26.
Services sector firms maintained steady momentum, recording 17% YoY growth in Q3FY26. Profit growth among non-financial listed companies remained robust, supported by better revenue growth.
#3. Government capex mixed; private investment shows early signs
Support from government capital expenditure remained mixed during the quarter. Central government capex declined, while state government capex showed an improvement.
Private investment is beginning to show early signs of recovery. Large industries increased borrowing from banks, and listed companies reported higher fixed asset investments, indicating improving investment sentiment.
However, support from central government capex is expected to weaken further in Q4FY26, with revised estimates pointing to a 16% year-on-year decline. While state government spending usually accelerates in the second half of the year, slower revenue collections could lead to some moderation in capex going forward.
#4. Low inflation boosts real GDP growth
A key factor supporting higher real GDP growth in FY26 has been the sharp slowdown in the GDP deflator. In Q3FY26, GDP deflator growth is expected to slow further to 0.2%, down from 0.5% in Q2FY26, as wholesale price inflation turns negative.
This slowdown has temporarily boosted real growth numbers.
#5. External sector drag increases
From the external front, the drag from net imports is expected to increase due to a widening trade deficit. Support from the front-loading of exports to the US has started to fade in Q3FY26 after the 50% bilateral tariff came into effect.
However, the recent reduction in tariff to 10% after the US Supreme Court order is expected to give boost to GDP in the coming quarters.
What’s different in the new GDP series?
The new series will adopt improved methodologies, including greater use of double deflation and volume extrapolation, to address issues related to inflation measurement.
The revision will also improve the measurement of household consumption by using high-frequency indicators such as GST data, vehicle registrations and passenger statistics. Statistical discrepancies between output and expenditure-side GDP estimates are expected to reduce with the use of supply-and-use tables.