Economists upgrade FY26 GDP growth forecasts to 7.4%, Pg19

Key Highlights:

• Economists have upgraded India's FY26 GDP growth forecasts to approximately 7.4%, surpassing the RBI's 6.8% projection.
• Barclays increased its forecast by 40 bps to 7.2%, citing strong momentum from festival demand and GST rate cuts.
• IDFC First Bank and State Bank of India project a growth rate of 7.6%.
• A potential trade deal with the US by December 2025 could push FY26 GDP growth closer to 8%.

Detailed Insights:

• The upward revisions are driven by stronger-than-expected GDP growth data in the second quarter.
• Economists caution that growth may slow in the second half of the year due to a fading base effect and slower government spending.
• India's trade relations with the US remain a significant challenge, with concerns about weakening outbound shipments.
• The statistics ministry is revising the GDP series, using 2022-23 as the base year, which may alter growth rate calculations.
• The revised GDP series will incorporate new data sources and methodological changes, potentially complicating forecasting.

Key Concepts Involved:

• GDP: The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
• Fiscal Year (FY): A 12-month period used for accounting and budget purposes, which may not align with the calendar year.
• Base Effect: The distortion in a monthly inflation figure occurring from abnormally low or high levels of inflation in the corresponding month of the previous year.