Statsguru: Deflators likely to offset corporate results' impact on GDP

Deflators may offset corporate results' impact on GDP

Economic growth is widely expected to be somewhere around the Reserve Bank of India’s projection of a four-quarter low of 6.5 per cent in the first quarter (Q1) of 2025-26 (FY26).

 

To set the background, the gross domestic product (GDP) growth in FY25 was not as buoyant as it was in the preceding year. Even then, the economy did recover in Q4 due to a pickup in an otherwise lacklustre secondary sector. (Chart 1) 

 

 

Investment growth provided a boost to the Q4 recovery, even as demand moderated. This reflected that private investments were still not forthcoming. (Chart 2) 

 

 

The recovery provided by the secondary sector may not be as strong in  Q1 of FY26. Besides, segments within services may also show some deceleration as shown by results of companies. (Chart 3)  

 

 

However, figures given in Chart 3 are at current prices. To calculate real GDP growth, one requires deflators based on wholesale and consumer inflation rates. Both remained muted in Q1 FY26, which may neutralise the dampening effect from companies to a large extent. (Chart 4) 

 

 

Most entities expect GDP growth in Q1 FY26 to settle in the 6.3- 6.9 per cent range, with gross value added (GVA) slightly lower. (Chart 5)  

 

 

If the growth rate falls within this range, India would still be the fastest-growing major economy in the world. Economic growth in India would be much higher than in Japan, which is in race with India to be the fourth-largest economy in the world in 2025.  (Chart 6)