India's economy grew at a healthy 7.8% in the April-June quarter of FY26, the quickest five-quarter expansion, beating the expectations of most economists. Economists had estimated growth ranging from 6.2% to 7%, with the Reserve Bank of India estimating 6.5% for Q1. The higher-than-anticipated growth was driven by advances in agriculture, manufacturing, construction, and services industries, official data published on Friday showed.
Consumer spending, the biggest sector contributing to GDP, increased 7% in June, marginally slower than the 8.3% expansion in the same period last year. Fixed asset investments in factories, plants, and machinery increased 7.8%, faster than the 6.7% posting in the same period last year. Government spending recovered strongly with a 7.4% increase after a Q1 FY25 contraction of 0.3%, indicating front-loaded disbursements to cushion economic momentum.
The manufacturing industry picked up 7.7%, construction grew 7.6%, indicating consistent industrial growth. Crop sowing trends in the kharif season favoured agricultural output, which picked up to 3.7% from a mere 1.5% in the previous year. Services remained the growth driver, growing 9.3%, sustained by increasing urban and rural consumption.
Gross fixed capital formation, which is an important harbinger of investment-led growth, increased by 7.8% in the quarter, and the Centre's capital spending increased by 30.1% over the three-year average. Core exports were resilient, while PMI readings for both manufacturing and services stayed over pre-COVID levels.
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India's Chief Economic Advisor pointed out that the healthy Q1 performance is an indication of strong macroeconomic stability and renewed growth momentum. "Private consumption accounts for its highest share of GDP in 15 years, while government spending and investment remain to anchor growth," he stated.
The government’s policies, including income tax relief, GST adjustments, and reforms in skilling and technology, have helped stimulate domestic demand. Meanwhile, the RBI’s 100-basis-point policy rate cut since February aims to further support economic activity.
In spite of global uncertainties and increased US tariffs impacting exports, India is still the highest-growing major economy, surpassing China's 5.2% growth over the same quarter. Economists are advising that global trade risks could be challenging, but domestic demand and policy support will continue to drive the growth path.
