India Defies Criticism with Strong Economic Growth in Q1 FY26 India's GDP Grows by 7.8% in the first quarter of FY 2025–26, compared to 6.5 per cent in the same period of FY 2024–25

Very recently, American President Donald Trump was in the headlines for saying that India is a dead economy. However, India's economic resilience remains evident in its strong GDP growth figures, with a notable surge of 7.8 per cent in the first quarter of FY 2025–26, compared to 6.5 per cent in the same period of FY 2024–25. This strong performance is largely attributed to robust growth in the tertiary sector, followed by the manufacturing and agriculture sectors.

In nominal terms, India's GDP grew by 8.8 per cent, highlighting the nation's steady advancement towards its vision of becoming a "Viksit Bharat" by 2047. Mr. Hemant Jain, President of the PHD Chamber of Commerce and Industry (PHDCCI), expressed optimism over the results, emphasising the positive impact of this growth trajectory. "This growth reflects India's unwavering momentum, despite global challenges," said Jain in a statement.

Growth drivers

The growth in India's economy was primarily driven by the tertiary sector, which recorded a robust growth of 9.3 per cent.

The agriculture sector, while showing growth, underperformed expectations, with a growth rate of 3.7 per cent. The key upside surprise, however, came from the manufacturing sector, which grew by 7.7 per cent year-on-year, marking the strongest growth in the last five quarters.

The Gross Fixed Capital Formation (GFCF), a critical indicator of investment in the country, also increased by 7.8 per cent, reflecting a healthy investment climate. The figures underscore the robust infrastructure and economic framework that continue to drive India's growth.

Consumption also showed signs of improvement, with services and consumption growth rising by 9.3 per cent and 7.0 per cent, respectively. Public spending also saw a significant uptick, supported by timely fiscal interventions. This helped maintain investment demand despite global economic uncertainties. Exports grew by 6.3 per cent, while imports surged by 10.9 per cent, resulting in flat net exports.

Government final consumption expenditure grew by 7.4 per cent, further boosting India's economic expansion. Additionally, a strategic reduction in the Monetary Policy Committee (MPC) rates, along with declining Consumer Price Index (CPI) and Wholesale Price Index (WPI) inflation, coupled with strong rural consumption, has provided an additional boost to the economy.

RBI's take

Following the positive GDP data, the Reserve Bank of India (RBI) is expected to remain on the sidelines in the near term, ruling out any immediate rate cuts. The fixed income markets reacted to the GDP release with a sell-off, reflecting market expectations that the RBI will not make any significant policy changes in the upcoming October MPC meeting.

Given the steady pace of GDP growth, nominal GDP growth remains on the lower end, at 8.8 per cent, down from 10.8 per cent in Q1 2025.

While the need for a rate cut is seen as low in the immediate future, inflationary pressures remain contained, making it unlikely for the RBI to adopt a hawkish stance. Analysts suggest that GDP growth data will continue to guide the RBI's policy decisions in the coming months, with inflation playing a secondary role in shaping the monetary policy outlook.

Road ahead

Despite this positive growth, economists remain cautious about the outlook for the remainder of FY26, with risks stemming from global uncertainties and trade disruptions, especially tariff tussle with Washington.

While the overall forecast for FY26 GDP growth remains at 6.5 per cent, there are potential upside risks to this projection. However, FY27 growth is expected to face greater challenges due to trade impacts, with a predicted GDP growth of 7.0 per cent, which may be disrupted by external factors.

However, government's continued focus on structural reforms, investment promotion, and improving ease of doing business will be key to sustaining this growth momentum. As India moves towards its goal of becoming a "Viksit Bharat" by 2047, these figures signal a promising start to FY 2025–26, despite the global uncertainties that could impact trade and economic sentiment.