GDP growth may exceed 8% in Q3, FY26 on strong domestic demand: SBI Research

The Indian economy is likely to clock over 8% growth in the third quarter of FY26, supported by resilient domestic demand and improving high-frequency indicators, according to a report by SBI Research released on Tuesday.

The report has “nowcasted Q3FY26 real GDP growth at 8.1%,” and said overall growth is expected to be “closer to 8.1%”. However, it cautioned that “given significant methodological changes and new data series to be released it is difficult to predict the extent of revision.”

The second advance estimates of GDP for FY26 are scheduled for release on February 27, along with a new GDP series based on 2022-23 as the base year. The base revision is expected to change earlier quarterly numbers as well.

Domestic demand remains strong

SBI Research said high-frequency activity data point to “resilient economic activity in 3QFY26.” Rural consumption has remained strong, driven by positive trends in farm and non-farm activity, while urban demand has shown a steady uptick since the festive season, supported by fiscal stimulus.

The report tracks 50 leading indicators across consumption, agriculture, industry and services. The share of indicators showing acceleration rose to 87% in Q3 FY26, compared to 80% in Q2, indicating broad-based improvement.

Based on its composite leading indicator, SBI estimates FY26 growth in the range of 7.7% to 7.8%, higher than the 7.4% projected in the first advance estimates by official sources.

New GDP series from 2022-23 base

India is moving its GDP base year from 2011-12 to 2022-23. The updated series aims to better reflect the changing structure of the economy, including the rise of digital commerce and services.

The revision will include improved measurement of the informal sector and wider use of new data sources such as GST filings, e-Vahan vehicle registration data and natural gas consumption. The report noted that this overhaul “aims to better reflect the current economic structure.”

It also highlighted a shift in methodology, including the adoption of double deflation in manufacturing and the use of more granular price indices. These changes are expected to provide more accurate constant price estimates.

Model-based estimate

SBI said it used a Dynamic Factor Model based on 41 high-frequency indicators to arrive at its estimate. The model extracts a single “dynamic factor” that captures overall economic momentum.

“Based on the estimated model, we obtain a nowcast of real GDP growth at 8.0-8.1% year-on-year for the reference quarter (Q3 FY26),” the report said, adding that the forecast is statistically significant.

Global risks persist

The report flagged global uncertainty as a risk factor, noting fresh tariff measures by the US administration and uneven global growth prospects. However, it maintained that domestic drivers remain strong enough to support India’s growth momentum in the current quarter.

With the new GDP series set to be released this week, economists will closely watch whether methodological changes lead to revisions in past data and alter the growth trajectory for FY26.