India’s GDP grew 7.8% in Q1FY26, highest in five quarters

Agriculture recorded growth of 3.7 per cent, a solid outcome though marginally below the four-quarter average of 4.4 per cent.

Strong growth in manufacturing and services, coupled with a revival in consumption, helped India’s economy exceed all expectations with GDP growing 7.8 per cent in the April–June quarter (Q1) of the current fiscal, the Statistics Ministry reported on Friday. This is the fastest pace of growth since the January–March quarter (Q4) of 2023–24.

“Despite the reciprocal tariffs and penal tariff (imposed by the US), and after seeing the resilience of Q1 growth, we are retaining the growth rate projections for the current fiscal at 6.3–6.8 per cent,” Chief Economic Advisor V Anantha Nageswaran told the media. He added that the downside risks to the GDP forecast for this year are unlikely to be significant.

Sector performance

Apart from manufacturing, which expanded 7.7 per cent, three services segments — trade, transport and hotels, financial and real estate, and public administration — also performed strongly, with the overall services sector expanding 9.3 per cent. Agriculture recorded growth of 3.7 per cent, a solid outcome though marginally below the four-quarter average of 4.4 per cent.

According to Aastha Gudwani, India Chief Economist at Barclays, the stronger-than-expected GDP and GVA growth in the first quarter reduces the case for trimming full-year forecasts despite tariff concerns. “With favourable base effects yet to play out in the Q2 FY25–26 print (recall Q2 FY24–25 growth surprised on the downside at 5.6 per cent y/y), we retain our FY25–26 growth forecast at 6.5 per cent y/y, amid substantially higher tariffs,” she said.

Cautious optimism

Other economists echoed this optimism, albeit with caution. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said: “We remain fairly cautious on the way ahead amid an expected slowdown in exports from higher tariffs, along with deferring production ahead of GST rate cuts. We expect some policy interventions to help offset the adverse impact of the tariff on exporters.”

Meanwhile, some analysts called for improvements in fiscal management. According to DK Srivastava, Chief Policy Advisor at EY India, although fiscal data for the first four months shows robust growth in central government expenditures of 20.2 per cent, with capital expenditure growing by 32.8 per cent and revenue expenditure by 17.1 per cent, the performance of tax revenues has been subdued with direct taxes showing a contraction of (-) 4.3 per cent.

“Going forward, we expect the situation regarding net exports to continue to face challenges. As such, GoI has to continue to provide fiscal support to overall growth through an emphasis on government capital expenditures and activate efforts for improving the government’s tax revenue performance,” he said.

Published on August 29, 2025