A key economic data point is set to be released next week – the Q1 GDP number is due on August 31. Despite the global tension, India’s economy continues to show resilience and is likely to post 7.3% growth in Q1, as per Care Edge Rating.
The rating agency has also revised its FY27 GDP growth projection to 7%, up from its previous forecast of 6.7%, on the back of better-than-estimated growth in IIP, credit, auto sales, exports, and a healthy quarterly earnings performance.
However, on a quarterly basis, the country’s GDP growth may see a slight contraction from the 7.8% print in Q4FY26.
Indirect tax collection in focus
Care Edge Rating pegs Gross Value Added (GVA) growth for the April quarter- June quarter at 7.4%, slightly lower than 7.9% reported in the preceding March quarter. It adds that the divergence between GDP and GVA reflects negative growth of net indirect taxes, which contracted by a sharp 19% during the quarter.
Centre’s net indirect tax collections shrank 19% during the quarter, driven by last September’s GST rate cuts and reduction in excise duties on petrol and diesel.
The government’s net indirect taxes are measured as the difference between the gross indirect tax collection and subsidies fell 7% in Q1 FY27, while subsidy outgo increased 37%. The surge in central subsidies was driven by a 58% year-on-year jump in fertiliser subsidies, followed by a rise of 18% in food subsidies and 10% in fuel subsidies.
Key drivers of growth in Q1
Care Edge notes that utilities, manufacturing, mining, construction & financial, real estate & professional services (FREPS) are likely major growth pillars for the first quarter of financial year 2027, while agriculture, public administration and trade, hotels, transport, communication & services related to Broadcasting Services (THTCS) are likely to drag the growth momentum.
| Sector | Q1 FY27(estimates) | Q4 FY26 |
| Manufacturing | 9.9% | 7.3% |
| Construction | 9.3% | 8.4% |
| Utilities | 7.0% | 4.1% |
| Mining & quarrying | 5.6% | 5.4% |
| Agriculture | 2.9% | 3.6% |
| Services | 8.0% | 9.9% |
Source: CareEdge estimates; Q1 FY27 compared with Q4 FY26.
Global growth to support domestic trend
Care Edge flags four near-term risks that could hamper India’s economic growth: the West Asia conflict and associated supply chain disruptions, tighter monetary policy led by inflationary concerns, uncertainty surrounding global trade policies, and El Niño-linked weather disruptions.
The agency notes that the effect of the tensions in the Middle East, which started in late February, carried over to the June quarter as well, posing a risk to the domestic economy as oil prices jumped sharply. It states that India, being a net oil importer and meeting more than half of its energy requirements through the chokepoint, the Strait of Hormuz, was vulnerable to the supply-related disruptions around the Bab el-Mandeb Strait in the Red Sea as well.
Despite the tensions, global growth held better than feared, aided by diversified supply chains, emergence of alternative shipping lanes in the Red Sea, drawdown of global strategic reserves, and pullback in China’s oil imports, it adds.
Global growth to rise 3.4% in 2027
The ratings agency added that the global AI-investment boom also supported economic momentum and expects corporate investments in this sector to climb towards the $1 trillion mark by 2026-end against the $600 billion reported in 2025.
Although the World Trade Organization (WTO) data cited in the report states that merchandise trade volume growth is estimated to slow sharply to 1.9% this year as compared to 4.6% reported last year, services trade volume held more strongly and is expected to ease to 4.8% this year against 5.3% reported in 2025.
While the IMF has trimmed its post-conflict global growth forecast to 3% from a pre-conflict 3.3%, the UN agency has lifted its 2027 forecast for the same to 3.4% from 3%, reflecting that domestic growth will likely be supported by global growth.
While the WTO estimates merchandise trade volume growth to drop from 4.6% in 2025 to 1.9% in 2026, services trade volume showed greater resilience, with growth projected to ease only marginally from 5.3% in 2025 to 4.8% in 2026. Although the IMF lowered its 2026 global growth forecast to 3.0% in its post-conflict July update from 3.3% in the pre-conflict January update, it also raised its 2027 forecast to 3.4% from 3.0%. Resilient global growth should, in turn, support domestic economic momentum despite headwinds from external risks.
Manufacturing sector to strengthen despite headwinds
Despite the global headwinds, CareEdge expects the domestic manufacturing sector to be a standout and grow 9.9% in Q1 FY27, up sharply from its 7.3% growth reported in Q4 FY26.
It notes that improvement in IIP manufacturing, robust passenger car sales, rise in automobile production, strengthened gross GST collections, and a jump in non-oil-non-gold from a previously reported flat growth provided tailwinds for the manufacturing sector. Alongside, the Indian rupee’s depreciation also provided further cushion.
| Segment | Q1 FY27 | Q4 FY26 |
| Manufacturing growth | 9.9% | 7.3% |
| IIP manufacturing | 6.3% | 4.7% |
| Automobile | 22% | 19% |
| └ Passenger vehicle sales | 25.6% | 13.1% |
| └ Two-wheeler sales | 20.4% | 26.4% |
| Gross GST collections | 8.4% | 7.7% |
| Non-oil-non-gold exports | 12.7% | 0% |
Source: CareEdge estimates; Q1 FY27 compared with Q4 FY26.
Care Edge also credited easing US restrictions on Russian crude imports, last year’s GST rationalisation and personal income-tax cuts, together with the implementation of past trade agreements: the India-Oman CEPA took effect in late Q1 FY27 and the India-UK CETA in early Q2 FY27 for sustained momentum in this sector.
The rating agency states that the construction sector strengthened too, with its GVA growth pegged at 9.3% in Q1, up from 8.4% in Q4, led by robust public capital expenditure. It states that central government capital expenditure likely rebounded in Q1 24% in Q1 after contracting by 23% in the trailing quarter.
The weak capex performance for the quarter ended March 2026 has been linked to an adverse base effect and delayed transmission of Q1 FY27, which was made in April. Capital spending by the country’s top 20 states also turned positive, rising 6.8% against a 1.9% contraction previously, adding to the construction sector’s growth, Care Edge said.
The agency expects mining and quarrying GVA to have shown a slight improvement to 5.6% in Q1 FY26 against 5.4% in Q4 FY26. According to Care Edge, IIP mining shrank to 1.4% during the Apr-June period as compared to 1.8% reported in the previous March quarter. The improvement was led by a 30% YoY jump in exports of ores and minerals, it adds.
Care Edge pegged overall utility services growth at 7% for the quarter, up from 4.1%. The growth is aided by better IIP electricity and gas supply output, which advanced 8.6% from 2.9% in Q4, while electricity generation grew 6% and power demand increased 8.4%, as elevated crude and natural gas prices may have encouraged industrial and household demand towards electricity, the report said.
Agricultural sector likely to see big drag
The agricultural sector is expected to drag down the growth, moderating 2.9% from 3.6% in Q4 FY26, the agency said, citing a delayed monsoon and softer agricultural activity led by the heatwave during the summer months of Q1, affecting the Zaid crops output. It adds that this sector’s contraction is reflected in the drop in sales of domestic tractors to 19% in Q1 from 35% in Q4.
Cumulative rainfall is currently 12% below its long-period average, with significant deficits across eastern, southern and northern parts of the country. By the end of Q1, it was 40% short of the normal level, leaving sowing 23% lower YoY by the end of the quarter, the report said.
As of August 14, the rainfall deficit has narrowed to just 2.1%, but the agency noted that sowing of cereals, pulses, and sugarcane remains well below previous year’s levels. The report added that any adverse impact from El Niño is more likely to show up in the second and third quarters.
Services growth projected to cool off to 8%
According to Care Edge, overall growth in the services sector contracted to 8% in Q1 FY27 from 9.9% in Q4 FY26, caused by a mixed performance across subsectors. Growth in the trade, hotels, transport, communication and broadcasting cluster (THTCS) is expected to have nearly halved to 6.5% from 12.5%, led by slower growth in air passenger traffic, fuel consumption, and e-way bill generation.
The agency points out that disruptions in the supply of LPG likely harmed the restaurant and hospitality industry. Also, it notes that public administration, central government revenue expenditure growth slowed sharply, rising by just 7.4% against 18% in the March quarter.
Similarly, revenue expenditure across major states increased just 3.8% from 10% growth recorded in Q1, and a combination of lower revenue expenditure and higher subsidy allocations likely weighed on the sectors’ lagged growth, Care Edge said in its report.
However, financial, real estate, and professional services stood out, with bank credit growth accelerating to 18.4% from 17% and services exports growth improving to 9.6% from 8.9%, aided by the rupee depreciation.
Consumption firms up, FDI inflows support investment
On the expenditure side, Care Edge expects private final consumption expenditure to inch up just 7.4% from 7.1%, driven by faster credit growth and last year’s tax cuts. The agency expects rural consumption to face headwinds from an uneven monsoon and an expected rise in food inflation, even as urban consumption remains steady.
Gross fixed capital formation is projected to improve marginally to 11.1% from 10.8% a year earlier, supported by the government’s capital expenditure push and a 25% YoY jump in gross FDI inflows during April-May FY27, a sharp turnaround from near-flat growth of 0.8% in the previous quarter. Government consumption expenditure, by contrast, is projected to soften to 4.3% from 4.9%.
Trade deficit widens as the import bill rises
India’s trade deficit advanced to $35 billion in Q4 from $22 billion in Q4, with Care Edge attributing the gap to elevated energy prices, pushing up the country’s import bill, especially for fossil fuels.
The deficit comes despite the improvement in exports, which expanded 12.9% in Q1 against 2.5% (in US Dollar terms). However, this was offset by a faster rise in imports, which grew 17.8% in the Apr-June quarter, up from 9.7% growth pegged in the Jan-Mar quarter.
Q2 and Q3 momentum likely to cool through rest of FY27
For the remainder of FY27, Care Edge pegs growth momentum to fall below 7%. The Q2 FY27 growth is seen at 6.9%, followed by Q3 FY27 growth at 6.8%, before a pickup to 7.1% in Q4 as the lag effects of external shocks play out in the economy.
| Quarter | GDP growth forecast |
| Q1 FY27 | 7.3% |
| Q2 FY27 | 6.9% |
| Q3 FY27 | 6.8% |
| Q4 FY27 | 7.1% |
| FY27 | 7.0% |
The agency flags that risks, especially those linked to energy-price volatility, could keep inflationary pressures, thereby weighing on real income growth and negatively affecting consumption demand.
It notes that unresolved trade and geopolitical uncertainty could delay private investment decisions, and tighter monetary policy may reduce foreign portfolio inflows. Another important factor in the growth trajectory remains a bill passed by the US Senate, which allows a 100% tariff imposition on major importers of Russian energy, including India.
On the weather front, CareEdge said the eventual hit from El Niño, particularly to the agricultural sector, remains uncertain and depends on how rainfall is distributed through the rest of the monsoon season. The agency notes that the government could step in with supply-side intervention to keep food inflation in check if required.