India’s gross domestic product (GDP) rose to a five-quarter high of 7.8 percent in Q1FY26, beating the Reserve Bank of India’s (RBI) forecast of 6.5 percent, according to government data released on Friday. This is despite high frequency indicators signalling a sequential slowdown.
“The low-price deflators have contributed to this high growth number to an extent as GDP is reckoned at current prices and then scaled down based on these deflators,” says Madan Sabnavis, chief economist at Bank of Baroda.
Meanwhile, gross value added (GVA) rose to a multi-quarter high of 7.6 percent, driven by an expansion in manufacturing and the service sector.
The services sector grew by 9.3 percent in Q1FY26 compared to 6.8 percent in the same quarter the previous year. This was its highest growth rate in two years; the sector grew by 12.5 percent in the first quarter of FY24. Manufacturing expanded by 7.7 percent this quarter on a higher base compared to 7.6 percent in the previous quarter. Experts say this aligns with expectations, despite low IIP (index of industrial production) growth, due to impressive value added based on corporate profits this quarter.
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Construction grew by 7.6 percent, a slowdown from the 10.1 percent growth it saw in the previous quarter. Electricity, gas and water supply grew by 0.5 percent—its worst performance since Q2FY21.
Mining contracted by 3.1 percent this quarter, but agriculture grew by 3.7 percent in Q1FY26 compared to 1.5 percent previously, which reflects “more of residual rabi harvest which will not cover the kharif crop for this year. And which will get reflected in Q3 numbers (partly in Q2)”, according to Sabnavis.
Experts believe that a high growth rate would help the economy withstand potential negative impacts from higher tariffs imposed by the US.
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Growth in private consumption slowed to 7 percent this quarter compared to 8.3 percent in Q4FY25. And government capex rose by 7.4 percent in comparison to a contraction in the previous quarter. Investment grew by 7.8 percent.
Aditi Nayar, chief economist, ICRA, says the outlook on private consumption remains strong, even as households could defer discretionary spending to the next quarter because of the festive season, due to several key factors like GST rate rationalisation, income tax relief and a healthy progress of kharif sowing. “Potential job losses in sectors affected by US tariffs could sour sentiment for some households,” she adds.
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Global economic uncertainty and a rise in trade barriers are likely to slow down global economic growth in 2025, according to the OECD (Organisation for Economic Co-operation and Development), which will mainly be concentrated in the US, China, Mexico and Canada.
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Nayar says a strong GDP growth this quarter has diminished any expectation that the recent tariff turmoil will lead to a rate cut during RBI’s Monetary Policy Committee meet in October.
