A Strong Start That May Not Last
India’s first-quarter GDP for FY26 is projected at 6.8%, making it the strongest reading of the year. But while the number looks encouraging on the surface, economists caution that this may be the high point. Growth is widely expected to taper in the quarters ahead, with forecasts slipping as low as 6.1% by Q4 — and potentially even lower if U.S. tariffs remain at 50%.
Why Economists Expect a Slowdown
The latest CNBC-TV18 poll shows Q2 growth at 6.4%, Q3 at 6.3%, and Q4 at 6.1%. These figures already assume a reduced 25% tariff. If tariffs hold at 50% through the year, India’s GDP could dip below the 6% mark, a worrying signal for policymakers and businesses alike.
Nominal GDP: The Silent Risk Factor
The debate this time isn’t just about real GDP. Nominal GDP — growth measured at current prices — is expected to fall short of the government’s target of 10.1%. Why does this matter? Lower nominal GDP impacts corporate revenues, tax collections, and makes real GDP look artificially stronger due to how inflation is accounted for.
For Q1, the GDP deflator may average around 1.5%, largely because of the unusually low WPI (0.5%) and CPI (2.7%). But economists argue this is misleading, especially since services — which dominate India’s GDP — have seen rising costs in health and education that aren’t fully reflected in the numbers.
Tax Collections and Corporate Earnings Under Pressure
Lower nominal growth translates into weaker company profits and, by extension, weaker tax revenues. Income tax collections already undershot last year’s budget estimates, and this year’s projections expect a steep 21% growth. With income tax and GST cuts in place, achieving that target looks difficult. If revenue gaps widen, governments may be forced to scale back capital expenditure, a key growth driver in recent years.
Could Consumption Be the Silver Lining?
On the positive side, tax and GST cuts could put more money in consumers’ hands, boosting demand in volume terms if not in value. Paired with lower interest rates, this could encourage private investment and job creation. If India can also negotiate a reduction in U.S. tariffs, growth could hold closer to the 6.5% level forecast by the RBI.
The Bigger Picture
Even with a promising first quarter, India faces a year clouded by global trade uncertainty, tariff wars, and a likely global slowdown. The numbers suggest resilience, but sustaining growth above 6% will require both smart domestic policy and a bit of external good fortune.