India’s economy is expected to clock a growth rate in the range of 6.8 percent to 7 percent in the April-June quarter of the current financial year (Q1 FY26), according to the latest report by the State Bank of India (SBI) Research, released on August 21. This robust performance has been attributed to higher discretionary spending, strong domestic demand, and increased government capital expenditure, which together have kept economic activity buoyant despite global uncertainties.
SBI’s internal nowcast model estimates Quarter 1 GDP growth at 6.9 percent year-on-year, while Gross Value Added (GVA) is pegged at 6.5 percent. This figure is particularly significant as it surpasses the Reserve Bank of India’s (RBI) earlier estimate of 6.5 percent, suggesting that the Indian economy performed better than anticipated in the first quarter of the fiscal year.
Key highlights of the SBI report
- GDP Growth Estimate (Q1 FY26): 6.8 to 7 percent
- Nowcast Model Estimate: 6.9 percent GDP growth
- GVA Growth: 6.5 percent
- Full-year FY26 Growth Projection: 6.3 percent (slightly below RBI’s 6.5 percent target)
- Private Investment Concern: Muted private capital expenditure remains a key challenge
- Nominal vs Real GDP Gap: Shrinking significantly due to low inflation levels
Government spending strong
The SBI Research analysis highlights the crucial role played by government capital expenditure in driving growth, pointing out that the elasticity of government spending to GDP has reached 1.17. This means public spending has had a disproportionately strong impact on pushing the economy forward.
However, the report also cautioned that private investment continues to lag behind, which raises concerns about the sustainability of long-term growth. “Private investment must complement public investment to take the economy onto a higher sustainable growth path,” the report noted.
It further flagged that US tariff policies could have a ripple effect on global investment flows, including in India, which might slow down private capital expenditure in the coming quarters.
Global outlook and IMF projections
On the international stage, the report observed that while the global economy remains broadly steady, growth patterns are increasingly being shaped by tariff-related distortions rather than by genuine underlying strength.
The International Monetary Fund (IMF) has revised its global growth projections, pegging it at 3 percent for 2025 and 3.1 percent for 2026. For India, the IMF has raised its forecast by 20 basis points to 6.4 percent, while China’s growth outlook has been revised upward by 80 basis points to 4.8 percent. These revisions reflect the resilience of Asian economies despite global trade disruptions.
Corporate sector performance in Q1 FY26
The SBI Research report also examined corporate performance during the first quarter of FY26. An assessment of around 4,300 listed Indian companies revealed: Revenue growth: 4.7 percent and EBITDA growth: 6.7 percent (down from 11 percent in the previous quarter).
The slowdown in earnings growth compared to the previous quarter was partly attributed to the resumption of tariffs on Indian exports, which is expected to put pressure on corporate earnings in the next two quarters as well.
Real vs Nominal GDP – Gap narrowing sharply
One of the most striking observations in the report was the shrinking difference between real and nominal GDP growth. In Q1 FY23, this gap stood at nearly 12 percentage points, but by Q4 FY25, it had reduced sharply to just 3.4 percentage points.
For Q1 FY26, SBI anticipates this gap will shrink further due to unusually low inflation levels. This means while real GDP growth remains strong at 6.8 to 7 percent, the nominal GDP growth rate may fall to around 8 percent. Analysts warn that this could create the perception of a slowdown in the economy even though real growth continues at a healthy pace.
Outlook for FY26 – Strong fundamentals with some caution
The SBI Research has projected GDP growth for the full year FY26 at 6.3 percent, which is slightly below the RBI’s target of 6.5 percent. The bank has trimmed growth projections by 0.2 percentage points for the remaining three quarters of the fiscal year (Q2–Q4).
Despite this minor downward revision, economists remain optimistic about India’s economic trajectory. Strong consumer demand, continued government spending, and resilience in key sectors such as manufacturing and services are expected to keep growth on track. However, greater private sector participation in investment will be critical for sustaining higher levels of growth in the medium to long term.
What does it mean for us?
In simple terms, India’s economy is doing better than expected in the first three months of this financial year. Growth is between 6.8 and 7 percent, which is higher than what even the Reserve Bank of India had predicted. This is mainly because people are spending more, demand in the market is strong, and the government is investing heavily in building roads, railways, and other infrastructure.
However, one concern is that private companies are not investing enough. For long-term growth, India cannot rely only on government spending; businesses also need to step in. Another point to note is that while the real growth looks strong, low inflation is making the overall money value growth (nominal GDP) look smaller, which can give a mixed picture.
Overall, the report shows that India’s economy is on the right track, stronger than many other countries, and if private investment picks up, the growth can become even more stable and sustainable in the coming years.
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