India’s headline growth indicators continue to paint a picture of economic resilience. However, a closer examination of GST collections, corporate profitability, margin trends, and business surveys suggests that the underlying pace of domestic value creation may be considerably slower than what the reported gross value-added numbers imply. Evidence from both listed companies and the broader manufacturing sector indicates that rising input costs, margin compression, and subdued private investment are increasingly challenging the situation.

Official estimates suggest robust GVA growth, with nominal GVA growing at 11.5% in the April–June quarter of 2026–27 and real growth above 8%, yet several alternative indicators point toward a much weaker underlying economy.

Net GST collections have expanded only modestly—April–June quarter: 7.2% adjusted for the discontinued compensation cess, -0.4% on an unadjusted basis, while import-related GST revenues have surged. 

Over the five quarters through the April–June quarter, import GST grew by roughly 21% on average, significantly faster than domestic GST growth of just 3.3%. Consequently, the share of import GST in total collections rose from around 18% historically to nearly 30%, while domestic GST’s share fell to about 70%.

This shift is important because GST collections are directly linked to economic transactions and value creation. The increasing dominance of import GST suggests that a larger share of economic activity is being driven by imported goods and import-intensive sectors rather than domestic production and value addition.

In effect, headline growth appears increasingly linked to leveraged consumption and imported inputs rather than a broad-based strengthening of domestic productive activity.

Margin Pressure
Corporate earnings data provide further evidence of this divergence.

Analysis of Nifty 500 companies in the April–June quarter showed a cost-led sales surge of 19% year-on-year, while raw material costs scaled up by an even faster 40%. As a result, gross value added, measured as sales minus raw material costs, increased by only 4.9%, substantially below revenue growth.

The impact on margins was significant. The raw-material-to-sales ratio increased by 662 basis points to 41.1%, while gross value-added margins fell to a four-year low of 58.6%. Even net profit margins declined despite extensive efforts by companies to mitigate the pressure. Net margins fell to 10.3%, highlighting that corporate profitability came under strain despite strong top-line growth.

These numbers suggest that reported revenue growth is increasingly reflecting higher input prices and imported content rather than genuine expansion in domestic value creation. In other words, sales growth is not translating into proportional growth in economic value added, a critical distinction when assessing the sustainability of growth.

Facing persistent margin pressures, companies have increasingly relied on cost optimisation to protect profitability. Corporate results indicate reductions in labour costs, interest expenses, operating expenses, depreciation charges, and tax outgoings as a proportion of sales.

While this strategy has helped limit the fall in net profit margins, it raises important concerns about future growth prospects. Containing labour costs implies moderation in employee compensation, which may impact household demand.

More importantly, declining depreciation expenses suggest limited additions to productive capacity, highlighting the absence of a meaningful private-sector capex cycle. Rather than investing for expansion, businesses appear to be preserving profitability by tightening costs.

This is not a sustainable source of earnings growth. Cost rationalisation can cushion margins temporarily, but long-term profitability ultimately depends on stronger demand and rising productivity. Without a revival in domestic demand and investment, companies may find it increasingly difficult to offset continuing raw material inflation.

Manufacturing Strain
The divergence between official manufacturing GVA data and corporate performance becomes even clearer in the manufacturing sector. According to results from 1,862 manufacturing companies, sales increased by 24% year-on-year in the April–June quarter, but raw material costs rose by 40%. The consequence was striking: nominal value added declined by 4.5% despite strong reported sales growth. Adjusted operating profits also contracted by 5.7%.

Manufacturing margins deteriorated sharply. Gross value-added margins fell approximately 775 basis points to 24.7%, the lowest level since 2012. Such a sharp compression suggests that rising commodity prices and imported input costs are absorbing a growing portion of corporate revenues.

The Reserve Bank of India’s Industrial Outlook Survey reinforces this picture. Manufacturers reported weaker order books, softer capacity utilisation, declining business sentiment, deteriorating profitability, and elevated raw-material costs. Profit margin expectations weakened substantially, while nearly four-fifths of respondents reported rising input costs.

Thus, the manufacturing sector’s performance and survey data do not corroborate the 10% and 7.7% nominal manufacturing GVA growth reported in the GDP releases for the January–March and April–June quarters of 2026, respectively.

Together, these indicators portray an environment where reported GVA and GDP growth remains positive, but actual value creation and profitability are under pressure.

The corporate evidence raises a crucial question: can reported GVA growth be sustained if value addition, margins, and private investment continue to weaken?

Historically, economic growth becomes durable when sales growth is accompanied by expanding margins, rising investment, improving productivity, and increasing domestic value addition. Current trends suggest the opposite. Revenue growth is increasingly dependent on imported inputs, gross margins are falling, private capex remains subdued, and companies are focused on cost cutting rather than expansion.

This suggests that the quality of growth may be deteriorating. Growth driven by higher import intensity and commodity inflation tends to be less employment-generating and less supportive of domestic income creation than growth led by domestic manufacturing and investment.

Looking ahead, corporate margin trends are likely to remain the key indicator to monitor. If global commodity prices remain elevated and crude oil stays in a higher range, input cost pressures could intensify further. Companies with strong pricing power, premium positioning, or exposure to globally priced commodities may fare better than businesses dependent on mass domestic consumption.

The emerging message from GST collections, corporate earnings, manufacturing data, and business surveys is remarkably consistent: strong reported GVA growth is not being matched by a comparable expansion in domestic value addition. Rising raw material costs, margin compression, subdued private investment, and the growing importance of import-driven activity suggest that the underlying economy is considerably weaker than headline figures imply.

Corporate India has so far protected profitability through aggressive cost management, but without a revival in domestic demand and investment, this buffer is unlikely to remain effective indefinitely. Corporates and investors should therefore look beyond reported GDP and GVA numbers and focus on value-addition metrics, corporate margins, domestic GST growth, and capex trends to assess the true health of the economy. End

* The views expressed here are personal and do not constitute any investment recommendation.