India's Q4 FY26 Growth Forecast Eases to 7.1-7.2%, Full-Year Outlook Revised to 7.4%

India's Economic Growth Slows to 7.1-7.2 Percent in Q4 FY26

India's economic growth in the January-March quarter of the fiscal year 2026 (FY26) may have eased to 7.1-7.2 percent from 7.8 percent in the previous quarter, largely due to the impact of external uncertainties and higher energy costs, say economists.

Positive Start to Q4, but Global Tensions Take a Toll

The fourth quarter of FY26 began on a positive note, supported by progress on the global trade front, including developments related to the India-EU trade agreement. The United States and India also eased bilateral trade frictions by agreeing to a framework for an interim reciprocal trade agreement, reducing tariff rates from 50 percent to 18 percent. However, the improvement in the external environment was short-lived as geopolitical tensions in the West Asia escalated towards the end of February, say economists.

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Energy Price Hike Hits Growth

The intensification of the West Asia conflict and the subsequent disruption in the Strait of Hormuz led to a sharp rise in global energy prices, which impacted Q4 growth. Economists at CareEdge note that companies likely relied on existing inventories to cushion the impact of rising input costs. The government and oil marketing companies (OMCs) also absorbed a major portion of the increase in energy prices before the pass-through to consumers began in Q1 FY27.

Growth Estimates Diverge

Growth estimates for Q4 FY26 vary among economists:

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First Three Quarters of FY26 Show Strong Growth

India's GDP in the first three quarters of FY26 came in at 7.7 percent, higher than 7.1 percent in the first three quarters of FY25. With growth in Q4 projected at 7.1-7.2 percent, the full year's GDP may come in at 7.4 percent. The second advance estimates projected real GDP growth at 7.6 percent for FY26, which was released on February 27, a day before the West Asian war broke out.

FY27 Outlook Uncertain

The impact of the West Asia crisis and possible El Nino conditions are likely to be reflected fully in FY27 growth numbers, say economists. They expect growth at 6.7 percent in FY27 assuming an early resolution of the West Asia crisis with crude oil price averaging $90/bbl. However, if the geopolitical conflict persists for a longer period and average crude prices rise to around $110/bbl, growth could slow further and move closer to 6 percent in FY27.

Q4 Internals Show Mixed Trends

On the Gross Value Added (GVA) side, agriculture growth may improve marginally from 1.4 percent in Q3 FY26 to 1.6 percent in Q4 FY26. This is mainly due to high-frequency indicators such as domestic tractor sales and agricultural credit growth, which have shown encouraging trends, economists at Bank of Baroda note.

Manufacturing sector growth is likely to fall to around 9.3 percent in Q4 from 13.3 percent in Q3 FY26. The decline in the growth of the sector is largely due to a fall in exports, which were initially affected by trade tensions and subsequently by the geopolitical conflict in West Asia. Non-petroleum, non-agricultural exports contracted by 0.7 percent in Q4FY26, compared with a growth of 3.2 percent in the previous quarter.

Several high-frequency indicators also point towards moderation in manufacturing activity. Growth in the Index of Industrial Production (IIP) manufacturing eased to 5.1 percent in Q4 FY26 from 6.3 percent in Q3 FY26. Likewise, passenger vehicle sales moderated to 13.1 percent from 20.5 percent, while passenger vehicle production slowed to 8.1 percent from 18.3 percent.

Services sector growth, meanwhile, may slow to 8.5 percent in Q4 from 9.5 percent in Q3. Within the services sector, indicators relating to trade, hotels, transport, communication, broadcasting, and public administration presented a mixed picture, while Financial, Real Estate and Professional Services (FREPS) showed broad-based improvement, economists say.