ICRA GDP Forecast: Q3 FY26 Growth Seen at 7.2% as Services & Agriculture Cool
Rating agency ICRA has projected India’s year-on-year GDP growth to moderate to 7.2% in Q3 FY26 (Oct–Dec 2025), down from 8.2% in Q2 FY26, citing slower expansion in services and agriculture even as industry shows improvement. The estimate was reported around ICRA’s latest assessment dated 22 February 2026, which also flags factors like base effects, softer government capex and subdued exports as reasons for sequential moderation.
What is in the news?
ICRA expects the pace of growth to ease in Q3 FY26, while still staying above the 7% mark. It highlights that the services GVA growth is estimated to slow to 7.8% (from 9.2% in Q2), and agriculture GVA to 3.0% (from 3.5%), which may outweigh the industrial improvement.
Sector-wise projections (Q2 FY26 vs Q3 FY26)
ICRA’s sectoral picture suggests a rotation in growth drivers—less support from services and farm output, relatively more support from industry.
| Metric | Q2 FY26 | Q3 FY26 (ICRA projection) |
|---|---|---|
| GDP growth (YoY) | 8.2% | 7.2% |
| Services GVA growth (YoY) | 9.2% | 7.8% |
| Industry GVA growth (YoY) | 7.7% | 8.3% (six-quarter high) |
| Agriculture GVA growth (YoY) | 3.5% | 3.0% |
Why is growth moderating? Key drivers flagged
1) Fiscal drag: capex contraction after frontloading
ICRA notes that after strong frontloading in H1 FY26, the Government of India’s gross capital expenditure contracted by 23.4% in Q3 FY26, and in absolute terms capex dipped to ₹2.1 trillion in Q3 from ₹3.1 trillion in Q2.
2) External headwinds: weak merchandise exports, softer services exports
The report commentary points to weak merchandise exports as a drag. It also notes that India’s services exports growth eased to a seven-quarter low of 7.5% in Q3 FY26, with services exports at $111.2 billion (vs 8.7% growth in Q2, $101.6 billion), partly due to an unfavourable base.
3) Base effect
ICRA explicitly mentions an unfavourable base effect as one reason behind the sequential moderation in the Q3 growth print.
4) What kept growth above 7% (supporting factors)
ICRA suggests that healthy festive season demand, supported by GST rationalisation, likely helped keep growth above 7% despite the drags.
Why this matters for UPSC (GS Paper III: Indian Economy)
This update is useful for answering questions on how GDP growth can slow sequentially even when one sector (industry) improves, because overall momentum depends on the weight and performance of services and agriculture, plus fiscal and external conditions. It also links to policy debates on the quality of growth—capex cycles, export competitiveness, and the role of services exports as a stabiliser for the current account and overall demand.
FAQs
Q1. What is ICRA’s GDP forecast for Q3 FY26?
ICRA has projected India’s YoY GDP growth at 7.2% in Q3 FY26, down from 8.2% in Q2 FY26.
Q2. Which sectors are expected to slow in Q3 FY26?
ICRA estimates services GVA growth may slow to 7.8% (from 9.2%) and agriculture to 3.0% (from 3.5%).
Q3. Which sector is expected to improve?
ICRA projects industry GVA growth at 8.3% in Q3 FY26 (up from 7.7%), described as a six-quarter high.
Q4. What fiscal factor did ICRA flag?
It flagged a 23.4% contraction in GoI gross capex in Q3 FY26, with capex at ₹2.1 trillion vs ₹3.1 trillion in Q2.
Q5. What did ICRA say about services exports?
It noted services exports growth eased to a seven-quarter low of 7.5% in Q3 FY26, with services exports at $111.2 billion.
Q6. What factors helped keep growth above 7%?
ICRA cited festive season demand and support from GST rationalisation as positives.
