India’s Economy Springs a Surprise: GDP Grows 7.8% in Q1 FY26
- Remin Francis I R
- Sep 1
- 2 min read
If you thought India’s economy might slow down this year, think again. The latest GDP numbers have come as a surprise to everyone. In the April-June quarter, India clocked an impressive 7.8% growth, the fastest pace in five quarters. Economists had expected a figure closer to 6.7%, but the actual number has comfortably surpassed those forecasts.
To put it in context, growth in the same period last year was 6.5%. With this rebound, India has once again cemented its position as the world’s fastest-growing major economy, outpacing China (5.2%), the USA (2.1%), and Japan (1.2%).
What Drove the Growth?
Services Sector Leads the Charge
The star performer was the services sector, which expanded by 9.3%. Within this, financial services, real estate, and professional services grew by 9.5%, while public administration and defence rose even higher at 9.8%. Trade, hotels, transport, and communication also showed solid growth at 8.6%.
Government Push Matters
Government spending made a noticeable difference this quarter. Government Final Consumption Expenditure (GFCE) rose by 7.4%, a sharp turnaround from the small contraction seen last year. The front-loading of capital expenditure, essentially the government spending early in the year on big projects, also boosted investment.
Investment Holds Up
Gross Fixed Capital Formation (GFCF), a measure of investments in new assets, grew 7.8%, showing that investment demand remains healthy.
Sector-Wise Performance
Manufacturing: Stayed strong at 7.7%, reflecting steady factory activity.
Construction: Maintained momentum at 7.6%, aided by infrastructure projects.
Agriculture: Improved to 3.7%, compared to just 1.5% a year ago.
Mining & Quarrying: Fell sharply by -3.1%, making it the weakest sector.
Electricity, Gas, Water: Growth slowed drastically to 0.5%, compared to over 10% last year.
Private Consumption: Grew at 7.0%, still solid but slower than the 8.3% seen last year.
The Road Ahead
Forecast Holds Steady
Chief Economic Advisor V. Anantha Nageswaran has kept the full-year growth forecast unchanged at 6.3%- 6.8%. While the first quarter has been very strong, the next quarter may not see such high numbers due to the “base effect”; last year’s Q2 was relatively high, making comparisons tougher.
Festive Season to Boost Demand
Looking ahead, economists expect the upcoming festive season to support consumer spending. Potential GST reforms may also add a push to household demand.
Risks to Watch
US Tariffs: The new 50% US tariff on certain Indian goods is a concern, especially for export-oriented manufacturing. It could slow momentum if it lingers.
Private Capex Still Weak: While government spending is strong, private sector investment is yet to fully pick up.
Global Uncertainty: Global demand and trade remain fragile, which could weigh on exports.
India’s economy has kicked off FY26 on a high with 7.8% GDP growth in Q1, driven by a powerhouse services sector, strong government spending, and steady investment. While risks like US tariffs and global headwinds remain, the near-term outlook is supported by domestic demand and the festive season ahead.
For now, India continues to shine as the fastest-growing major economy, sending a clear signal of resilience and momentum.
Want to read more?
Subscribe to finsightsbysquareleague.com to keep reading this exclusive post.
