Rating agency ICRA has projected India’s year-on-year (YoY) GDP growth to moderate to 7.2 per cent in the third quarter (Q3) 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.
