India’s GDP Growth: Rating agency ICRA said on Tuesday that India’s GDP growth rate is expected to decline to 7 percent on a quarterly basis in the July-September quarter of the financial year 2025-26, whereas it was 7.8 percent in the previous quarter. The main reason for this decline in growth rate is considered to be the slowdown in government spending.

On the other hand, State Bank of India has said in its research report that due to GST reforms, increased demand in rural areas and strong investment, the pace of Indian economy will be around 7.5 percent during the second quarter of financial year 2026. According to news agency ANI, this momentum may continue after the increase in demand due to tremendous performance and reforms in the service and manufacturing sectors. The report further said that due to the reduction in GST rate, huge purchases were made during the festive season.

Decline in service-agriculture sector

ICRA said that there may be a slight decline in the service and agriculture sectors in the second quarter, but due to manufacturing, construction and favorable comparative base, industrial performance is expected to remain strong. This will support the economic activities of the quarter.

The agency said in its statement that the GDP growth rate in the second quarter of the financial year 2025-26 is estimated to be 7 percent, whereas in the first quarter (April-June) it was 7.8 percent. In the same period of the last financial year 2024-25, the growth rate was recorded at 5.6 percent.

Impact of tariff in the second quarter

ICRA Chief Economist Aditi Nair said that lower growth in government expenditure on an annual basis could impact the pace of GDP and GVA (gross value added) in the second quarter as compared to the first quarter. He said that stockpiling of goods related to the beginning of festivals, increased demand due to GST rate rationalization and increase in exports to America before the implementation of duty will strengthen the manufacturing sector. Due to this, the GVA growth rate of industry is likely to outpace that of the service sector after four quarters.

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GST 2.0: Taking a big step towards speeding up the country’s economy, the central government has made a big change in GST. Earlier, four slabs were kept in GST 1.0, but now it has been reduced to only two slabs. This new structure will be applicable from 22 September 2025. However, the state governments have expressed concern about their revenue loss about this change.

According to the government estimate, there may be a loss of about Rs 48,000 crore annually based on the consumption pattern of 2023-24. Revenue Secretary Arvind Srivastava said in a statement to news agency IANS that the central government may have to bear such a burden.

What do brokerage firms say on loss?

Brokerage firms believe that the actual loss will not be so large, as GST improvement can increase demand. According to Jafaries estimates, in FY 2026, this deficit can be reduced between 22,000 and 24,000 crore rupees. The firm argues that tax cuts may reduce inflation and in such a situation, the Reserve Bank can cut interest rates from 25 to 50 basis points.

Experts of Bransstein say that if the government does not cut capital expenditure, then this deficit can increase to about 20 basis points of the Union Budget. But if capital expenses are cut by 5 percent, then this effect will be reduced to only 5 basis points.

Impact on market

According to UTI AMC, the impact of this change on the bond market and stock market will be limited. At the same time, the ICRA welcomed the government’s move and said that this improvement will prove to be positive for industries struggling with the pressure of American high tariffs and will strengthen the market notion.

Also read: What do the big business personalities of the country think on GST 2.0? Opinion from Anand Mahindra to Harsh Goenka