The Fiscal Metrics Quarterly: Q1 Macro Outlook

 There is something odd going on in India’s forecasting community this month. On 31 August, the National Statistical Office will publish GDP for the April–June quarter. Ahead of that release, SBI Research reckons the economy grew 8.0%. India Ratings says 6.9%. CareEdge is at 7.3%, ICRA at 7.0%.

That is a 110 basis point spread on a quarter that finished eight weeks ago, in an economy where the monthly data is public and everybody is reading the same numbers.

Dispersion that wide usually signals confusion about the future. This time it signals something more interesting: uncertainty about the ruler, not about the thing being measured.

The measuring stick moved

In February, MoSPI shifted India’s national accounts onto a 2022-23 base year, retiring the 2011-12 series that had been in use since 2015. The changes are not cosmetic. GST returns, the Public Financial Management System and e-Vahan registration data now feed the estimates directly, replacing indicator-based proxies. Manufacturing and agriculture are double-deflated rather than single-deflated. Household enterprise activity is drawn from annual ASUSE and PLFS surveys instead of extrapolation between survey rounds.

The result is a visibly stronger economy on paper. FY2024-25 was restated at 7.1%. FY2025-26 came in at 7.7% real growth on nominal GDP of Rs 346.36 lakh crore, with the March quarter at 7.8%. Manufacturing GVA grew 10.7% for the year; agriculture managed 3.0%.

Analysts are still learning the new series’ habits, which is a large part of why the Q1 estimates fan out the way they do. Nobody has enough quarters of history to know how the rebased numbers behave under stress, and two things that would help are still pending. MoSPI has said the back series will arrive by December 2026, and the Sources and Methods volume, which is what serious users need in order to audit the estimates rather than merely quote them, is due this month. Until both land, comparisons across the base-year break are educated approximations. That is a caveat worth attaching to every year-on-year figure quoted in the coverage that follows the print.

What the quarter actually did

Industry accelerated. Under the rebased IIP, also on 2022-23 and with its basket widened from 407 to 463 item groups, output grew 4.9% in April, 5.1% in May and 7.3% in June. That is not a flat quarter, it is a climbing one. April’s capital goods reading of 16.0% is the figure worth holding onto, because capital goods orders are a promise about the next four quarters rather than a report on the last one.

Tax collections held up. GST remains the cleanest near-real-time proxy for nominal activity. Gross collections for April to July totalled Rs 8.43 lakh crore, up 10.1% year-on-year. July alone brought in Rs 2.11 lakh crore, up 15.4%, with net collections of Rs 1.81 lakh crore. The composition is instructive: IGST on imports rose 28.8% while domestic collections grew 10.1%.

Credit ran hot. Non-food bank credit grew 19.3% year-on-year in the fortnight ended 31 July, the fastest since May 2024, against deposit growth of 15.4%, the strongest since December 2016. The deposit number is flattered by USD 36.7 billion mobilised through the RBI’s FCNR(B) swap window, opened in June, under which the central bank absorbs the hedging cost on eligible three- to five-year foreign currency deposits. Strip that out and the funding gap looks less comfortable than the headline suggests.

Trade turned. This is where the fiscal year changed character. The interim India–US agreement announced on 6 February cut the reciprocal tariff on Indian goods from 50% to 18%, with zero-duty access for gems, pharmaceuticals, smartphones and several agricultural lines, while dairy, rice and millets stayed protected. Merchandise exports for April–July reached USD 173.78 billion, up 17%. July set a record at USD 44.24 billion, up 19.63%, with shipments to the United States rebounding almost 13% to USD 9.02 billion after two consecutive monthly declines.

The catch is that imports grew faster still, at 19%, taking the four-month deficit to USD 118.60 billion. July’s merchandise gap of USD 31.98 billion was a six-month high. But look at what drove it: electronics imports up 46%, crude up 18%, gold up only 5%.

“A widening trade deficit built on electronics and machinery is a different animal from one built on bullion. The first is a bill for tomorrow’s capacity. The second is a bill for yesterday’s anxiety.”

Prices, and why Mint Street is sitting still

Retail inflation ran at 3.48% in April, 3.93% in May, 4.38% in June and 4.45% in July on the 2024=100 series. The quarterly average of roughly 3.9% came in below the RBI’s own 4.1% projection for Q1. Food inflation was 5.52% in July and housing a mild 2.22%.

On 5 August the Monetary Policy Committee voted unanimously to hold the repo rate at 5.25% for a fourth straight meeting. The rate has not moved since December 2025. The stance stayed neutral. Growth for FY27 was nudged up to 6.7% from 6.6%, and inflation trimmed to 5.0% from 5.1%.

Read the quarterly path rather than the annual figure. The MPC expects growth of 7.0% in Q1, then 6.4%, 6.5% and 6.8%. Inflation is projected at 4.1% in Q1, 4.7% in Q2, 5.9% in Q3 and 5.5% in Q4. A committee that sees inflation brushing 6% two quarters out is not a committee about to cut.

The monsoon is the live risk

Cumulative rainfall from 1 June to 5 August stood at 11% below the long period average. June and July together were 13% below normal, and close to half of India’s districts were classed deficient or largely deficient at the end of July. IMD expects August rainfall below 94% of LPA.

The distribution is as awkward as the total. Northwest India has been deficient while the south peninsula ran in excess, and central India swung from a 50% deficit in June to a 33% surplus in July. Kharif sowing has not recovered in step with the rain. This, and not the tariff file, is what sits behind the RBI’s 5.9% Q3 inflation projection.

One wobble worth noting

Q1 was strong. July, the first month of Q2, was not. The HSBC India Composite PMI fell to 54.3 from 57.1 in June. Services activity dropped to 53.3, the weakest reading in 53 months, and manufacturing eased to 53.5. Anything above 50 still means expansion, so this is a deceleration rather than a contraction, and export orders actually strengthened. But input costs rose faster across both sectors and firms passed part of that on, with output charge inflation quickening.

Survey data is not national accounts data, and PMIs have a habit of overreacting to a single soft month. Still, a three-point drop in composite output in one month is the sort of thing that shows up in the Q2 print if it persists. Anyone reading a strong Q1 number on 31 August as a statement about the rest of the year should hold that thought.

Fiscal room, and the discipline to keep it

The April–June fiscal deficit was Rs 3.1 lakh crore, or 18.2% of the full-year budget estimate of Rs 16.96 lakh crore, which is 4.3% of GDP. A year earlier the comparable figure was Rs 2.8 lakh crore. Net tax receipts rose to Rs 6.4 lakh crore from Rs 5.4 lakh crore. Total expenditure was Rs 13.6 lakh crore.

The number that deserves attention is capital expenditure: Rs 3.4 lakh crore in the quarter, up 23.6%. The Centre is front-loading against a full-year capex budget of Rs 12.21 lakh crore within total spending of Rs 53.47 lakh crore, and doing it while holding the deficit glide path. Outstanding liabilities are estimated at 55.6% of GDP for FY27, against a stated aim of roughly 50% by March 2031.

The Budget assumed 10% nominal GDP growth for FY27. Nominal growth in FY26 was 8.9%. If the deflator stays low, that assumption gets uncomfortable, because deficit ratios are denominated in nominal rupees.

What to watch when the print lands

Three things will tell you more than the headline.

First, the deflator. FY26 delivered 7.7% real growth on 8.9% nominal, an implicit deflator near 1.2%. Strong real growth resting on an unusually soft deflator is a weaker result than the same number resting on healthy nominal expansion.

Second, private consumption. Most houses expect it near 7.4%, helped by GST rationalisation and credit growth. If it undershoots, the manufacturing story is running ahead of the demand story.

Third, the wedge between GVA and GDP, which is net indirect taxes. With import IGST up 28.8%, that gap should be informative. ICRA expects GVA at 7.2% against GDP of 7.0%.

The broader frame is unchanged. The IMF’s July update puts India at 6.4% for calendar 2026 and 6.7% for 2027, against global growth of 3.0% and 3.4%. The rupee sat at 95.42 to the dollar in mid-August while reserves reached USD 707 billion. India is still the fastest-growing large economy, still importing more than it earns abroad, and still one bad monsoon away from a different conversation about interest rates.

On 31 August we find out which of the forecasters was reading the new ruler correctly.

Sources

●        MoSPI — Press Note on GDP Estimates for Q4 and Provisional Estimates, 2025-26 (5 June 2026) — https://www.mospi.gov.in/uploads/latestReleases/latest_release_1780655857536_5ac01869-ca4a-422d-b7a7-57b81da60932_Press_Note_on_GDP_Estimates_for_Q4_2025-26_and_PE_FY_2025-26_F.pdf

●        PIB — Provisional Estimates of Annual GDP 2025-26 and Q4 estimates (5 June 2026) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2269286&reg=48&lang=2

●        PIB / MoSPI — New Series of GDP Estimates with Base Year 2022-23 (27 February 2026) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2233518&reg=3&lang=1

●        MoSPI — Consumer Price Index press release, July 2026 (12 August 2026) — https://www.mospi.gov.in/uploads/latestReleases/latest_release_1786529680747_3113661d-1a2b-4b9a-af06-b340193ef9a0_Press_Release_CPI_July_2026.pdf

●        PIB — First press release of the new IIP series, base 2022-23 (April 2026 data) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2267531&reg=3&lang=1

●        PIB — Index of Industrial Production, May 2026 — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2278961&reg=48&lang=2

●        RBI — Minutes of the Monetary Policy Committee Meeting (19 August 2026) — https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR9257E0CB4D769F24658B0AB41428CA46F97.PDF

●        RBI — Monetary Policy statements index — https://www.rbi.org.in/scripts/annualpolicy.aspx

●        PRS Legislative Research — Union Budget 2026-27 Analysis — https://prsindia.org/files/budget/budget_parliament/2026/Union_Budget_Analysis-2026-27.pdf

●        Union Budget 2026-27 — Budget Speech — https://www.indiabudget.gov.in/doc/budget_speech.pdf

●        IMF — World Economic Outlook Update, July 2026 — https://www.imf.org/en/publications/weo/issues/2026/07/08/world-economic-outlook-update-july-2026

●        S&P Global — HSBC Flash India PMI, July 2026 — https://www.pmi.spglobal.com/Public/Home/PressRelease/dbd07910d1554cfebf929b119540cf09

●        The White House — Fact Sheet: The United States and India Announce Historic Trade Deal (February 2026) — https://www.whitehouse.gov/fact-sheets/2026/02/fact-sheet-the-united-states-and-india-announce-historic-trade-deal/

●        Business Standard — Gross GST collections rise 15% in July, led by strong import revenues — https://www.business-standard.com/economy/news/gst-collections-rise-15-percent-to-rs-2-11-trillion-in-july-126080100511_1.html

●        Business Standard — India’s trade deficit widens to six-month high of $31.98 billion in July — https://www.business-standard.com/economy/news/india-trade-deficit-six-month-high-july-2026-126081301078_1.html

●        Business Standard — April-June fiscal deficit at 18.2% of the 2026-27 target (CGA data) — https://www.business-standard.com/economy/news/april-june-fiscal-deficit-of-india-stood-at-18-2-of-2026-27-target-126073101116_1.html

●        Business Standard — Bank deposit growth hits highest since December 2016 at 15.4%: RBI data — https://www.business-standard.com/finance/news/bank-deposit-growth-hits-highest-since-december-2016-at-15-4-rbi-data-126081401827_1.html

●        Business Standard — Monsoon rainfall records deficit of 11% compared to LPA so far this season, says IMD — https://www.business-standard.com/markets/capital-market-news/monsoon-rainfall-records-deficit-of-11-compared-to-lpa-so-far-this-season-says-imd-126080700683_1.html

●        Down To Earth — After recovery in warm July, August-September rainfall to be below normal: IMD — https://www.downtoearth.org.in/climate-change/after-recovery-in-warm-july-august-september-rainfall-to-be-below-normal-imd

●        Business Today — Q1 FY27 GDP growth seen at 7%; El Nino remains a concern (19 August 2026) — https://www.businesstoday.in/latest/economy/story/q1-fy27-gdp-growth-seen-at-7-el-nino-remains-a-concern-550031-2026-08-19

●        The Tribune — India services sector growth falls to 53-month low in July: HSBC PMI — https://www.tribuneindia.com/news/business/india-services-sector-growth-falls-to-53-month-low-in-july-hsbc-pmi/amp

●        India Briefing — US-India strike interim trade deal, cut tariffs to 18% — https://www.india-briefing.com/news/us-india-interim-trade-agreement-18-percent-tariff-42514.html/