ICRA reports moderation in business activity growth in August 2026, expects support in September

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ICRA economic moderation in August

Highlights

According to the ICRA Business Activity Monitor, annual economic activity growth stood at 10.5% in August 2026, down from 11.1% in July 2026.
Annual core sector growth fell to 4.8% in August 2026, with six of the nine sub-sectors showing weakness.
ICRA expects growth to receive support in September 2026 due to seasonal factors and a low base, but a strong GST-related base, weaker crops and inflation risks could increase demand pressures in Q3 FY2027.

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August indicators and September outlook

According to ICRA's monthly update dated September 22, 2026, annual economic activity expansion, as measured by the ICRA Business Activity Monitor, an index based on high-frequency indicators, stood at 10.5% in August 2026, slightly down from 11.1% in July 2026. The moderation was broad-based, with the year-on-year performance of 11 out of 16 component indicators weakening between the two months.

Annual growth in core sector output also declined to 4.8% in August 2026. Relatively weaker performance in six of the nine sub-sectors contributed to the slowdown.

Early trends for September 2026 appear relatively positive. ICRA says that the low base during the Shraddha period, retail activity deferred ahead of last year's GST rate cuts, and lower rainfall in the current month, which is considered favourable for mining and construction, could support overall growth performance.

Demand, inflation and risks in the second half of the financial year

Going forward, a strong base effect due to GST rate rationalisation could make the growth picture appear statistically weaker in Q3 FY2027. This may limit the assessment of the underlying strength of festive-season demand.

ICRA also indicates that weaker crop prospects and rising inflation risks could put pressure on consumer demand in the second half of the financial year. This underscores the need to remain cautious about broader economic trends despite the positive near-term signals.

Our previous report discussed ICRA's assessment that inflationary pressures would remain elevated in August 2026 and could rise further in September-October. The report also highlighted risks related to crude oil and the monsoon, along with indications that growth momentum could continue in select sectors based on indicators such as toll collections, electricity generation and coal inventories.

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