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BUSINESS & TRADE JULY 18, 2025 | The Indian Eye 36

Slower Growth, Tougher Profits:

Indian Economy Faces Crosswinds Amidst

Positive Forecasts

As India eyes stable GDP expansion in FY26, analysts warn that falling nominal growth and

global headwinds could limit corporate revenues and challenge earnings momentum.

OUR BUREAU

NEW DELHI
ndia’s economic trajectory for FY26 presents a
complex picture: while real GDP is expected to
Igrow at a steady 6.5%, a significant decline in
nominal growth and looming global uncertainties
are casting a shadow over corporate profitability
and credit expansion.
According to a recent report by Jefferies, India’s
nominal GDP growth is projected to fall to 9% in
FY26, a six-year low and the second weakest since
FY04, excluding the pandemic-affected FY21. This
slowdown, despite consistent real GDP growth, is
primarily attributed to easing inflation. Lower price
levels reduce the overall nominal value of econom-
ic activity, impacting revenue streams and financial
projections across sectors.
The implications are significant. Jefferies cau-
tions that corporate revenue growth is unlikely to
rebound meaningfully in FY26, with weaker nomi-
nal indicators expected to drag down earnings mo-
mentum. “Don’t expect corporate revenue growth
to bounce materially in FY26,” the report states,
noting that the nominal downturn could also af-
fect sectors such as banking and consumer finance,
where topline growth is closely tied to GDP figures. The India Meteorological Department projects a 106% monsoon, expected to boost agricultural output and, by extension, rural
One of the most immediate impacts is on credit
expansion. Credit growth, which historically tracks incomes (ANI representative photo)
nominal GDP, is already showing signs of moder-
ation. Despite the Reserve Bank of India’s pro- average), expected to boost agricultural output and, chemicals, and textiles, contributed to the slide.
growth stance, Jefferies forecasts that bank credit by extension, rural incomes. Crisil notes that rural External trade challenges are compounding
growth may not exceed 11-12% by March 2026. This support schemes and income tax cuts announced domestic issues. Reciprocal tariff hikes by the U.S.,
could affect both investment appetite and liquidity in the FY26 budget will likely drive consumption, effective July 9, are expected to weigh on Indian
for businesses, particularly mid-size enterprises that particularly in semi-urban and rural markets. goods exports. These protectionist measures, com-
rely on institutional lending. Crisil also expects an additional rate cut during bined with broader geopolitical uncertainty, could
The broader concern is that FY26’s nominal the current fiscal, following a cumulative 100 basis discourage private investment and limit export sec-
GDP performance would fall below the long-term points reduction in the ongoing easing cycle. These tor momentum in FY26.
average. Since FY04, India’s average nominal policy moves have already led to lower lending In summary, India’s economic outlook for
growth has hovered around 12.6%. A sustained pe- rates and increased spending on infrastructure. FY26 is a balancing act. While structural strengths
riod below this benchmark suggests tighter condi- Government capital expenditure grew by 38.7% in like rural demand, public capex, and monetary pol-
tions for earnings expansion, limited credit activity, May, with 17 major states reporting a 44.7% year- icy support provide a cushion, declining nominal
and moderated business optimism. on-year increase in capex for the same month. GDP growth and subdued global trade prospects
In contrast to Jefferies’ cautious tone, a sepa- Sectors linked to investment-related goods pose real risks. Corporates may face an environ-
rate report by Crisil offers a more optimistic out- showed signs of resilience. Infrastructure and con- ment where topline growth decelerates, credit ac-
look for the current fiscal year. The rating agency struction goods output rose by 6.3% in May, up cess tightens, and export gains diminish.
has revised India’s real GDP growth upward to from 4.7% in April. However, other segments of The challenge for policymakers and businesses
6.5%, citing several macroeconomic tailwinds, in- the economy are exhibiting strain. The Index of alike will be to maintain momentum in real eco-
cluding an above-normal monsoon forecast, fur- Industrial Production (IIP) slipped to 1.2% year- nomic activity while navigating the headwinds of a
ther monetary easing, and government-led capex on-year in May, down from 2.6% in April, marking softer nominal environment. As FY26 unfolds, the
initiatives. its lowest point since August 2024. Weaker perfor- Indian economy’s resilience will be tested not only
The India Meteorological Department proj- mance in the electricity and manufacturing sectors, by domestic fundamentals but by its ability to with-
ects a 106% monsoon (relative to the long-period along with output declines in pharmaceuticals, stand global volatility and internal fiscal constraints.

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