Economists Raise Full-Year Growth Target But There's a Fresh Concern

India's first-quarter growth of 7.8% has prompted economists to raise full-year growth forecasts despite concerns over the potential impact of the ongoing trade tiff with the United States.

Yet, experts pointed to a marked moderation in the deflator, a measure of inflation, as one factor that gave Q1 GDP a boost, and whose effect could cause other headaches going forward.

Statisticians calculate output growth in the economy to first arrive at the "nominal" growth but this number includes the impact of a rise in prices. This number is then adjusted by the average inflation during the period in question -- the deflator -- to show "real" growth, which is the headline number that is widely tracked.

The nominal GDP for the last quarter came in at 8.8% which when adjusted with the the low deflator perked up the real GDP growth numbers.

Nominal GDP growth in India typically ranges between 10-12%, with inflation often contributing 4-5% to it.

In fact, "the jump in real GDP is more of a statistical boost; the bulk of high frequency indicators actually slowed during the quarter," said a research note by Nuvama.

Nominal GDP growth for the full year is expected to slow to 7.6-7.9% in FY26. This will come with its own macro implications, said Madhavi Arora, lead economist at Emkay.

"A lower nominal GDP will make this year’s gross tax collections target even more difficult to achieve, as it requires nearly double the tax buoyancy vs budgeted," she pointed out.

All other macro and market variables — such as fiscal deficit/GDP, sovereign debt/GDP, credit growth or corporate earnings, etc — will need to be re-calibrated accordingly, Arora said.

Any slippage on nominal growth would imply much higher compression of fiscal deficits for achieving similar improvement in the debt/GDP dynamics, she added.

Nuvama, which lowered nominal GDP growth forecast to 8.5–8.7% on an annual basis, from 10% earlier, said that nominal GDP is critical from fiscal arithmetic and business capex intentions’ standpoints, adding that the Reserve Bank of India must ease monetary policy to support nominal growth.

On the real GDP growth front, Emkay's Arora noted that the US' 50% tariff on Indian exports would "start to feed through exports and have a domino effect on employment, wages, and private consumption."

But its impact, she added, this would be offset by the other positive factors.

"We mark up FY26 estimated real GDP growth by 50 basis points to 6.5%, even as underlying macro signals remain patchy," Arora said.

If the US' 50% bilateral tariff persist till March 2026, the drag on FY26 growth is estimated at 0.4%, said Gaura Sengupta, chief economist at IDFC First Bank.

The proposed GST cuts, if rolled out by October 2025, are estimated to push up growth by 0.3% in FY26, she estimated.

"On a net basis, the GST cut will only partly balance-out the negative impact of the 50% bilateral tariff," she explained. "As such, the upward revision in FY26 GDP growth is mainly due to the higher-than-expected Q1FY26 GDP print."