India’s economy demonstrated resilient momentum in the first quarter of FY26 (April–June 2025), registering a 7.8% GDP growth rate, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI). This marks a five-quarter high, significantly surpassing the Reserve Bank of India’s (RBI) forecast of 6.5% for the period. The upbeat performance has reinforced optimism around India’s economic trajectory in the face of global trade uncertainties and shifting investment patterns.

Headline Numbers: Nominal and Real Growth

Nominal GDP rose by 8.8% to ₹86.05 lakh crore (US$ 975.7 billion) in Q1 FY26. Meanwhile, real Gross Value Added (GVA) at constant prices expanded by 7.6% to ₹44.64 lakh crore (US$ 506.2 billion). The combination of strong real growth and a modest inflationary environment enabled the economy to maintain its pace of expansion, supported by robust domestic demand.

Sector-Wise Performance

The services sector was the star performer, expanding by 9.3%, underpinned by strong growth in financial services, trade, transportation, and communication. The manufacturing sector also showed impressive resilience, registering a 7.7% expansion, reflecting gains in industrial activity, rising exports in select segments, and improved capacity utilisation.

The construction sector grew 7.6%, supported by sustained government push for infrastructure and private real estate momentum. The agriculture sector, which had slowed in the previous year due to erratic monsoons, bounced back with 3.7% growth, up from just 1.5% in Q1 FY25. However, mining contracted by 3.1%, pointing to persistent bottlenecks, while the utilities sector posted marginal growth of 0.5%.

Expenditure Side Growth Drivers

On the demand side, Private Final Consumption Expenditure (PFCE) rose by 7% in real terms, demonstrating strong consumer demand, particularly in urban markets. Meanwhile, Government Final Consumption Expenditure (GFCE) grew by 9.7% in nominal terms, highlighting continued fiscal support and welfare spending.

Investment momentum was robust, with Gross Fixed Capital Formation (GFCF) registering 7.8% growth at constant prices. This reflects rising expenditure on infrastructure, machinery, equipment, and buildings, all of which are essential for long-term productive capacity. The rise in investment indicates continued private sector confidence alongside public capex.

Context: Recent Growth Trends

India’s Q1 FY26 growth comes on the back of a 7.4% expansion in Q4 FY25, showing an acceleration in economic momentum. Easing food and energy prices, lower interest rates, and a renewed focus on investment-led growth have provided a solid foundation. Importantly, India’s relatively low export dependence insulated the economy from disruptions caused by the US-led tariff war and global trade tensions.

RBI and Government Outlook

The RBI has projected 6.5% growth for FY26 as a whole, but Q1’s stronger-than-expected performance may prompt a reassessment in upcoming policy reviews. Officials believe that domestic demand, government-led capital expenditure, rural consumption recovery, and moderating inflation will keep the economy resilient through the year.

India’s policymakers have highlighted that growth must remain inclusive, ensuring that benefits reach the rural economy while sustaining momentum in urban markets. The rebound in agriculture is expected to provide further support to rural demand, particularly if monsoons remain favourable in the coming quarters.

Global Positioning

Amid slowing growth in advanced economies, India’s performance has drawn global attention. With its 7.8% GDP growth rate, India remains the world’s fastest-growing major economy, strengthening its appeal as a global investment hub. The government continues to focus on policies aimed at enhancing ease of doing business, infrastructure development, and digitalisation, which are expected to attract both domestic and foreign investment.

Conclusion

India’s Q1 FY26 GDP growth at 7.8% underscores the economy’s resilience and momentum, powered by services, manufacturing, consumption, and investments. While risks such as external trade headwinds, monsoon variability, and global financial volatility persist, India’s domestic demand-driven growth story remains intact. If current trends continue, India could surpass initial projections and deliver another strong year of expansion, consolidating its position as a leading driver of global growth in 2025–26.

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