India’s GDP Growth Projected at 7.8% in September Quarter, Above RBI Estimate: SBI Research

NEW DELHI, November 14: India’s economy is expected to have expanded by 7.8 per cent during the July-September quarter of the current financial year, according to a research report released by State Bank of India (SBI). The projection is higher than the Reserve Bank of India’s earlier estimate of 7.2 per cent and points towards continued resilience in domestic economic activity.

The assessment, prepared by SBI Research under its Ecowrap publication, suggests that economic growth remained strong during the second quarter of FY2026-27 despite global uncertainties, fluctuating commodity prices and pressure on manufacturing costs.

The report uses a Dynamic Factor Model incorporating 54 high-frequency indicators covering agriculture, industry and services to estimate the country’s economic performance.

According to the assessment, real gross domestic product (GDP) growth is likely to reach approximately 7.8 per cent, while gross value added (GVA) is projected to increase between 8 and 8.2 per cent.

Nominal GDP growth is estimated at 11 to 11.5 per cent, indicating an improvement compared with the 10.3 per cent recorded during the April-June quarter.

The projections provide an encouraging indication of India’s economic position at a time when several major economies are dealing with inflationary pressures, trade uncertainties and uneven global demand.

The report also highlights the contribution of industrial production, construction-related activities, transportation and domestic consumption to the overall growth outlook.

Manufacturing and infrastructure support expansion

Manufacturing activity has emerged as one of the important contributors to the projected economic performance.

SBI Research identified improvements in cement production, commercial vehicle sales, non-oil exports and port cargo as important indicators supporting growth during the September quarter.

The improvement in cement production reflects continued activity in construction and infrastructure development.

Cement demand is closely connected with housing projects, road construction, commercial real estate and public infrastructure investment. Strong production therefore provides an indication of activity across several interconnected industries.

Commercial vehicle sales also strengthened, suggesting improved movement of goods and demand for transportation services.

The performance of the commercial vehicle industry is particularly important because it reflects activity in manufacturing, logistics, construction and distribution networks.

Higher vehicle sales can indicate that businesses are expanding their transportation capacity in response to improving demand.

The report also pointed towards growth in non-oil exports, demonstrating that India’s external trade activity has remained an important contributor to economic momentum.

Increased exports of manufactured goods and industrial products can support domestic production, generate employment and strengthen the contribution of industry to national income.

Port cargo activity was another positive indicator identified by SBI Research. Higher cargo movement generally reflects increased trade, industrial demand and transportation requirements.

Together, these indicators suggest that economic activity remained relatively broad-based during the quarter.

GVA growth expected to remain strong

The report estimated that India’s gross value added could grow between 8 and 8.2 per cent during the July-September period.

GVA measures the value generated by different sectors of the economy after accounting for intermediate consumption. It is an important indicator for understanding the performance of agriculture, manufacturing, construction and services.

The projected increase indicates that economic activity across major sectors remained supportive during the quarter.

The distinction between GDP and GVA is important because GDP includes net taxes on products, while GVA measures the value created by producers.

Changes in taxes and subsidies can therefore cause differences between the two growth measures.

SBI Research also estimated that nominal GDP would expand between 11 and 11.5 per cent, compared with 10.3 per cent in the preceding quarter.

Nominal growth reflects changes in both actual economic output and prices. It is therefore influenced by inflation as well as real production.

The report estimated the GDP deflator at approximately 3.4 per cent and the GVA deflator at 4.1 per cent.

These estimates provide an indication of the price movements affecting different components of economic activity.

The manufacturing sector, however, continues to face pressure from input costs.

According to SBI Research, input prices remain higher than output prices across several manufacturing industries, suggesting that businesses have not been able to fully transfer rising production expenses to customers.

This situation could affect operating margins, particularly among companies facing intense competition and limited pricing flexibility.

Agriculture and services show different trends

The economic assessment also highlighted variations in price movements across different sectors.

The agricultural deflator was estimated to have increased to 6.4 per cent during the September quarter, indicating stronger price pressures in the agricultural segment.

The services deflator was estimated at 3.5 per cent.

These differences demonstrate that inflationary trends are not uniform across the economy.

Agricultural prices can be influenced by seasonal production patterns, weather conditions, transportation expenses and changes in the supply of essential commodities.

Services inflation, meanwhile, can be affected by wages, rental expenses, healthcare costs, transportation and consumer demand.

The agricultural sector remains particularly important because it supports rural incomes, employment and domestic consumption.

A favourable agricultural performance can strengthen purchasing power in rural areas and create additional demand for consumer goods, automobiles, construction materials and financial services.

However, fluctuations in agricultural production and commodity prices can create uncertainty for households and businesses.

The government will therefore need to continue monitoring food supply conditions and agricultural market developments to prevent excessive price volatility.

Some indicators point to areas of weakness

Although the overall growth outlook remains positive, SBI Research also identified certain areas where economic activity has moderated.

Mining output, tractor sales and airport passenger traffic showed signs of weakening during the period under review.

Mining activity is an important component of industrial production because it supplies raw materials to manufacturing, construction, electricity generation and infrastructure industries.

A slowdown in mining output could affect the availability of essential inputs and influence industrial production if the trend continues.

Tractor sales provide an indication of rural economic conditions, agricultural investment and farmers’ purchasing capacity.

A decline or moderation in tractor demand may reflect concerns relating to farm incomes, seasonal factors or higher financing costs.

Similarly, airport passenger traffic is an important indicator of mobility, tourism and business travel.

Any slowdown in passenger movement could affect aviation companies, hospitality businesses, airport operators and related service industries.

However, individual indicators should not be interpreted in isolation. Economic activity can vary from month to month due to seasonal patterns, weather conditions and changes in consumer behaviour.

The overall assessment of 54 high-frequency indicators provides a broader picture of economic performance.

Banking sector benefits from stronger credit demand

SBI Research also highlighted the banking industry’s performance during the September quarter.

Strong credit growth helped banks report healthy profitability, while public sector banks recorded improvements in asset quality compared with private sector counterparts.

Credit expansion is an important component of economic activity because it allows businesses to finance investment, manage working capital and expand production.

For households, access to loans supports purchases of homes, vehicles and consumer goods.

An increase in lending activity can therefore contribute to economic expansion by strengthening consumption and investment.

The performance of public sector banks is particularly relevant because these institutions play an important role in financing infrastructure projects, small businesses, agriculture and government-supported development programmes.

Improving asset quality can also strengthen their financial position by reducing the burden of non-performing loans.

When banks maintain healthier loan portfolios, they may have greater capacity to extend credit to productive sectors.

However, sustainable credit growth requires responsible lending practices and adequate risk management.

Rapid expansion in loans without proper assessment can create financial vulnerabilities, particularly if borrowers face repayment difficulties.

The banking sector will therefore need to maintain a balance between supporting economic activity and protecting the quality of its assets.

Inflation remains a policy challenge

The encouraging GDP projection comes against the background of renewed concerns regarding inflation.

Rising prices can affect household purchasing power and influence decisions by the Reserve Bank of India regarding monetary policy.

The central bank’s inflation-targeting framework aims to maintain consumer price inflation within a range of 2 to 6 per cent, with a medium-term target of 4 per cent.

However, inflation driven by supply disruptions can be difficult to control through interest-rate adjustments alone.

Chief Economic Adviser V Anantha Nageswaran has highlighted the limitations of relying exclusively on monetary tightening to address supply-side price pressures.

When inflation is caused by shortages of food, energy or industrial inputs, increasing borrowing costs may not immediately resolve the underlying supply problem.

Higher interest rates can reduce demand and influence borrowing decisions, but they cannot directly increase agricultural production or eliminate disruptions in international supply chains.

This makes coordination between monetary and fiscal policies particularly important.

Government measures aimed at improving transportation, strengthening supply chains, supporting agricultural production and ensuring the availability of essential commodities can help address inflationary pressures.

For businesses, stable prices are important because they make it easier to plan investments, manage production costs and maintain profitability.

India’s growth outlook remains positive

SBI Research expects real GDP growth to moderate to approximately 6.9 per cent in both the third and fourth quarters of FY2026-27.

Although this would represent a slowdown from the projected 7.8 per cent expansion in the September quarter, the estimated pace would still indicate relatively strong economic activity.

The moderation could reflect the impact of changing base effects, domestic price pressures and variations in global demand.

International developments will also remain important for India’s economic performance.

Changes in crude oil prices, international interest rates, geopolitical tensions and trade policies can influence domestic production costs and investment decisions.

India’s dependence on imported energy makes the economy particularly sensitive to fluctuations in international oil markets.

Higher crude prices can increase transportation expenses, raise production costs and place pressure on the country’s import bill.

On the other hand, stable energy prices can support industrial activity and improve the financial position of businesses that depend heavily on fuel.

The performance of exports will also be important in sustaining economic momentum.

Strong international demand can support manufacturing, generate employment and improve foreign exchange earnings.

The government has been focusing on strengthening domestic manufacturing through infrastructure investment, production-linked incentive programmes and efforts to attract private investment.

These initiatives are intended to improve industrial competitiveness and reduce dependence on imported products.

Investment and consumption will determine future momentum

Maintaining strong growth will require continued expansion in both private investment and household consumption.

Infrastructure development has supported economic activity through investment in roads, railways, airports, ports and urban facilities.

Such projects create demand for cement, steel, machinery, engineering services and transportation.

Private sector investment will also be important in determining whether the current economic momentum can be sustained.

Businesses generally increase investment when they expect stronger demand, stable operating conditions and attractive returns.

Improved credit availability and predictable policy conditions can encourage companies to expand manufacturing facilities and develop new products.

Consumption is another major contributor to India’s GDP.

Higher household spending can support industries ranging from automobiles and electronics to retail, hospitality and financial services.

However, the impact of inflation on household budgets remains an important consideration.

If food, fuel and housing expenses increase significantly, families may reduce discretionary purchases, affecting demand across several consumer-facing industries.

Policymakers will therefore need to ensure that economic expansion translates into improved employment opportunities and stronger household purchasing power.

The latest SBI Research assessment provides an encouraging picture of India’s economic performance during the September quarter. Strong manufacturing indicators, export activity, banking sector growth and infrastructure-related demand have supported the upward revision in expectations.

Nevertheless, weaker performance in selected sectors and persistent input-cost pressures indicate that the recovery is not without challenges.

The official GDP figures will provide a more comprehensive assessment of the economy’s performance when released by the government.

Until then, SBI Research’s 7.8 per cent projection offers a positive indication of India’s growth potential while highlighting the importance of controlling inflation, strengthening industrial competitiveness and sustaining investment.