We now revise our FY27 growth forecast to 7.3% from earlier 6.6%. Our forecasts point to real GDP growth of 7.3% in Q2, 7.2% in Q3 and 6.9% in Q4 FY27, with momentum supported by accelerating high-frequency indicators, including industrial production, services activity, credit demand and investment spending, alongside resilient consumption. The gradual moder ation reflects normalization from Q1’s strong 7.8% base rather than a loss of underlying momentum, with domestic demand remaining the key growth anchor.  

Basis MoSPI revisions, interestingly, the updated annual GDP for FY25 is now exactly 7.2%, matching exactly the number given by RBI in Oct’24 policy! Some perpetually vocal sections at that point of time critical of RBI need some kind of intro spection perhaps now. The quarterly revisions for FY26 are also quite diverse. While nominal growth and real growth rates are revised downwards for Q2 & Q3, the Q4 witnessed whopping 72 bps upwards revision in real GDP growth. Coming back to Q1 numbers, Services sector remains the star performer of Q1, growing by 10.0% , led by 12.1% growth in ‘Financial, real estate & professional service sector’ and 8.5% growth in ‘trade, hotels, transport, communication, etc.’ sector. Agriculture sector grew a tad lower at 3.6% while industry sector grew impressively at 7.7% and manufacturing sector again showed strong growth of 9.2% YoY (8.3%). 

The impact of changes in export and imports prices had an impact on GDP deflator. The contribution of different expendi ture items to GDP deflator shows that capital formation and exports have contributed the most to the deflator. Output price pressures strengthened in Q1 FY27, with the GDP deflator rising to 2.3% from 1.1% in Q1 FY26, while the GVA deflator at basic prices increased sharply to 3.0% from 1.1%. The acceleration was led by agriculture and industry, with their deflators rising from 0.3% to 3.8% and -0.3% to 3.9%, respectively. In contrast, services remained relatively stable, with its deflator moving from 2.1% to 2.4%. Manufacturing deflator turned negative at –1.4% in Q1 FY27. This apparent divergence sug gests that input prices were rising faster than manufacturers’ output prices. Juxtaposing this with oil prices reveal that higher crude prices feed into the cost of petroleum products and other intermediate inputs; however, if manufacturers are unable to fully pass these higher costs on to final prices, the input–output price differential compresses value added. If this continues then the manufacturing deflator is likely to be in negative territory.  

Meanwhile, the FY27 Budget has pegged the fiscal deficit at Rs 16.96 lakh crore, equivalent to 4.5% of GDP on the new GDP base, while the Centre’s debt is budgeted at 57.4% of GDP. However, if nominal GDP expands by the assumed 10%, the fiscal deficit will stand around 4.6%, higher than the budgeted numbers. Also, assuming a 10% nominal GDP growth, the debt to GDP ratio should stand at 57.1% . 

That brings us to an important question to ponder; Credit growth globally has been showing robust uptick across jurisdic tions, led more so across Asian EMs (ex-China and AI led economies viz. Japan/Taiwan largely), moving firmly beyond a side kick of capital markets vagaries which may sooner (than later) necessitate rate actions from the Central Banks, a normaliza tion act counter intuitive to likely generalization setting in price prints. This, we believe, may up the ante for the Mint Street to actively pursue the virtues of a shallow yet front loaded rate hike, a cautious ovation to the resilience put to West Asia crisis by the local economy. With the growth rate at 7.8%, the chances of an imminent increase in output pric es looks possible. This has already happened in select sectors like handsets, consumer goods, and metal items. Also, a rate hike would somehow align and vindicate with RBI MPC minutes giving much needed clarity to markets.