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‘Indian economy is alive and kicking well, largely unfettered by noise,’ says SBI Research in its report ‘Ecowrap’.
Q1 FY26 GDP Growth Data.
The robust GDP numbers for Q1, pleasantly higher than the estimated consensus note, is a tight hit on the rhetoric mimicking the dead economy jibe, according to an SBI Research report. It added that the Indian economy is alive and kicking well, largely unfettered by noise.
India’s gross domestic product (GDP) grew at 7.8 per cent in the first quarter ended June 30, 2025, according to the latest official data. The number has surpassed all GDP expectations as most analysts had pegged the growth at 6.5-7%.
The Indian economy had grown at 6.5% in the year-ago quarter, and at 7.4% in the previous quarter (Q1 FY26).
“The robust GDP numbers for Q1, pleasantly higher then estimated consensus note, is a tight hit on the rhetoric mimicking dead economy jibe…Indian economy is alive and kicking well, largely unfettered by noise,” SBI Research said in its report ‘Ecowrap’.
It said India’s Q1 GDP growth came in at 7.8%, almost 100 basis points more than consensus. Nominal GDP growth came in at 8.8%. Core GVA (overall GVA excluding agriculture and public finance) registered a growth of 8.0% YoY in Q1 FY26 compared with 7.1% YoY in Q1 FY25, indicating private sector growth momentum.
Manufacturing and Services sector are the star performers of Q1 and grew by 7.7% and 9.3% respectively, it added.
The incremental share of services sector in Q1 FY26 increased to whopping 68% and that of Manufacturing at 17%. This indicate that almost 85% of the growth in GVA is due to these two sectors. “What are the plausible reasons for such?”
SBI Highlights Key Reasons
Firstly, if we look the item-wise IIP basket, more than 50% items registered a significant higher growth during Q1 ranging from as high as ~194% -53%. This possibly indicates that production of many items have been frontloaded in lieu of uncertainty.
Secondly, the high frequency indicators for the tourism sectors (Railways, Air, Hotel Occupancy) all show strong demand trends in the Q1FY26 which has propelled the overall growth numbers in the service sector.
Thirdly, there has been an increasing momentum in housing loans disbursement following the rate adjustment by RBI beginning February 2025, even though in incremental terms it is marginally lower than last year.
“Meanwhile, consumption and investment both remained strong. Centre’s Capex in Q1 FY26 is 24.5% of the budgeted amount,” SBI Research said.
On Proposed GST Cut
Separately, the strong growth in private consumption at 7% begs the question of a GST cut. However, as past experience shows, GST rates have been rationalised from time to time, as in July 2018 and October 2019, SBI Research said.
“In fact, the fear of decline in growth due to GST rationalisation is rather unfounded. Trends indicate that while a cut in GST rates may lead to about 3-4% m-o-m decline in revenue immediately (Rs 5,000 crore on a monthly basis/ annualised basis the loss could be around Rs 60,000 crore) but in the longer run revenue rises in the range of 5-6% m-o-m. This in the past had translated into a revenue gain of Rs 1 lakh crore,” it added.
The PM Modi’s vision of a clutter-free GST regime in the form of rate rationalisation has long-term benefits for the overall economy. Thus, the argument for the GST rate rationalisation is in larger interest and not strictly related to invigorating consumption growth as many would believe so, according to SBI Research.
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h… Read More
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