Growth Amid Global Headwinds India's Q1 GDP Shines

SYNOPSIS

India’s economy grew 7.8% in Q1 FY 2025-26, the fastest in five quarters and above expectations. GDP reached ₹47.89 lakh crore, while nominal GDP rose 8.8% to ₹86.05 lakh crore. Growth was backed by services, manufacturing, and strong government spending and also with inflation at a six-year low of 0.9%.

India’s economy continues to shine bright, showcasing strong Q1 GDP growth despite global challenges.

A Strong Start to the Year

India’s economy grew by 7.8 % in the Q1 FY 2025-26. This is the fastest growth India has seen in five quarters and beats expectations. According to the National Statistics Office, growth was mainly due to the services sector, a recovery in manufacturing, and increased government spending.GDP hit ₹47.89 lakh crore, up from ₹44.42 lakh crore a year ago. Nominal GDP reached ₹86.05 lakh crore, an 8.8 % increase. The Gross Value Added also grew by 7.6 % to ₹44.64 lakh crore. The latest GDP data showed the inflation deflator at just 0.9 %, the lowest level in almost six years.

Sector Trends

Agriculture and related activities grew by 3.7 %, helped by good monsoon forecasts and government schemes like PM-KISAN. But higher costs and uneven weather limited the progress. In contrast / adverse, mining dropped 3.1 % because of weak demand and regulatory problems.Manufacturing grew 7.7 % with government support, while construction rose 7.6 % driven by infrastructure and real estate demand. Electricity and utilities barely grew at 0.5 %.The services sector marked the strongest growth, up 9.3 %. Trade, transport, and hotels grew 8.6 % with help from tourism and 5G.

Spending and Investment

Government spending surged by 9.7 %, more than doubling last year's rate, as resources were allocated early on for infrastructure and social programs. Household consumption increased by 7 % slower than last year but still steady, thanks in part to easing food prices. Investment grew 7.8 %, mainly in roads, railways, renewable energy, and private projects like autos, chips, and green tech.

Policy Boost

Two recent policy changes have boosted confidence. S&P Global updated India’s credit rating after 18 years. The government under GST 2.O also updated GST to two rates, 5 and 18 % making goods like food, cars, bikes, and cement cheaper and helping businesses.

Outlook and Risks

For FY 2025-26, growth is expected to range between 6.3 and 6.7 %. However, the risk is high, because of U.S. tariffs on Indian exports, a slowdown in global demand & weak performance in sectors such as mining and utilities.India’s growth is expected to average 6 to 6.5 %, with help of ongoing reforms, increased capital spending, and young expanding population. India will surpass Japan by 2026 and become the world’s fourth largest economy with a projected GDP of over $4.2 trillion. By 2030, GDP of India can be between $7 trillion and $12 trillion.

Conclusion

India's performance in the first quarter shows strong momentum, although there are global instability. Due to faster growth in services and manufacturing industry also with significant government spending and investment, and low inflation, the economy is in better position for the year ahead.

Parth Ajmera