ICRA Projects India’s GDP Growth to Moderate to 7.2% in Q3 FY2025-26

Rating agency ICRA has projected that India’s year-on-year (YoY) GDP growth will moderate to 7.2% in Q3 FY2025-26, compared to 8.2% recorded in Q2 FY2025-26. The slowdown is mainly due to weaker performance in the services and agriculture sectors, despite improved growth in industry.

Sector-Wise Performance

Services Sector

• Growth expected at 7.8% in Q3 FY26
• Down from 9.2% in Q2 FY26
• Affected by lower government spending and weaker services exports

Agriculture Sector

• Growth projected at 3.0% in Q3 FY26
• Down from 3.5% in Q2 FY26

Industrial Sector

• Growth improved to a six-quarter high of 8.3% in Q3 FY26
• Up from 7.7% in Q2 FY26

Despite industrial recovery, the decline in services and agriculture is expected to outweigh the gains.

Reasons Behind the Slowdown

According to Aditi Nayar, Chief Economist at ICRA, the slowdown is due to:

• Unfavourable base effect
• Contraction in Government capital expenditure (capex)
• Subdued state government revenue expenditure
• Weak merchandise exports

However, festive season demand and GST rationalisation helped keep overall growth above 7%.

Government Spending Trends

Central Government Capex

• Contracted by 23.4% YoY in Q3 FY26
• Compared to +47.7% growth in Q3 FY25
• Fell to ₹2.1 trillion in Q3 FY26, from ₹3.1 trillion in Q2 FY26

Revenue Expenditure

• Central non-interest revenue expenditure declined 3.5% YoY in Q3 FY26
• State governments’ non-interest revenue growth eased to 2.7% in Q3 FY26 from 7.3% in Q2 FY26

Combined central and state revenue spending grew marginally by 0.3% YoY in Q3 FY26, compared to a 0.6% decline in Q2 FY26.

Outlook

ICRA has anchored its Q3 GDP outlook to the existing GDP dataset, estimating growth at 7.2%, down from 8.0% in the first half of the fiscal year. While industrial growth provides support, weaker services, agriculture and government spending may limit overall momentum.

MCQs: India GDP Growth Q3 FY2025-26

Q1. ICRA has projected India’s GDP growth at what rate for Q3 FY2025-26?
(a) 6.8%
(b) 7.0%
(c) 7.2%
(d) 7.5%
(e) 8.2%

Ans: (c)
Sol: ICRA projected GDP growth at 7.2% for Q3 FY2025-26.

Q2. What was India’s GDP growth rate in Q2 FY2025-26?
(a) 7.2%
(b) 7.7%
(c) 8.0%
(d) 8.2%
(e) 8.5%

Ans: (d)
Sol: GDP growth was 8.2% in Q2 FY2025-26.

Q3. Which sector recorded a six-quarter high growth of 8.3% in Q3 FY2025-26?
(a) Agriculture
(b) Services
(c) Industry
(d) Banking
(e) Exports

Ans: (c)
Sol: The industrial sector grew by 8.3%, marking a six-quarter high.

Q4. The services sector growth moderated to what level in Q3 FY2025-26?
(a) 6.5%
(b) 7.0%
(c) 7.8%
(d) 8.5%
(e) 9.2%

Ans: (c)
Sol: Services sector growth slowed to 7.8% in Q3 FY2025-26.

Q5. Government of India’s gross capital expenditure in Q3 FY2025-26 contracted by:
(a) 10.4%
(b) 15.2%
(c) 18.7%
(d) 23.4%
(e) 30.1%

Ans: (d)
Sol: Gross capital expenditure contracted by 23.4% YoY in Q3 FY2025-26.

Q6. In absolute terms, GoI’s capex declined to how much in Q3 FY2025-26?
(a) ₹1.5 trillion
(b) ₹2.1 trillion
(c) ₹2.5 trillion
(d) ₹3.0 trillion
(e) ₹3.5 trillion

Ans: (b)
Sol: Capex dipped to ₹2.1 trillion in Q3 FY2025-26.