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India’s economy grew a stronger-than-expected 7.8% in the April-June quarter despite the West Asia war and the accompanying energy price shock, as robust investment, resilient services and a pick-up in exports powered expansion.
The growth, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday, was well above the Reserve Bank of India’s forecast of 7% and most analysts’ estimates.
Growth could have been even higher but for the impact of the West Asia crisis on government finances. Higher subsidy payouts and excise duty cuts on auto fuels weighed on net product taxes, creating an unusually wide gap between GDP and gross value added (GVA).
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GVA, considered a better measure of underlying economic activity, expanded 8.2% in Q1FY27, with services growing 10% and the secondary sector 8.6%.
GDP growth was 8.6% in the previous quarter — revised upwards from the earlier estimate of 7.8% — and 7% in Q1FY26.
The better-than-expected first-quarter performance prompted some analysts to raise their FY27 growth forecasts to around 7-7.5%, from 6.5-7% earlier.
A key driver was investment. Gross fixed capital formation (GFCF), a proxy for investment, surged 11.9%, the fastest in the new GDP series going back to FY23. Investment growth has now accelerated for four consecutive quarters, helped by sustained government capital expenditure.
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The Centre’s budgetary capex rose 24% in April-June and 30% in April-July, reflecting its continued use of public investment to crowd in private-sector projects.
The share of GFCF in nominal GDP rose sharply to 34.3% in the June quarter from 31.4% a year earlier.
“This is a major takeaway as this involves both private and government expenditure, with the former being driven by data centres and power besides metals,” said Madan Sabnavis, chief economist at Bank of Baroda.
Foreign trade provided another significant boost despite supply disruptions and uncertainty caused by the US-Iran war. Exports of goods and services grew 12%, while imports contracted 1.1%. Net exports are estimated to have contributed 3 percentage points to headline GDP growth, the highest since January-March 2024.
Household demand also remained supportive. Private final consumption expenditure, the largest component of aggregate demand, grew 7.1%, moderating slightly from 7.5% in the March quarter.
Rajani Sinha, chief economist at CareEdge, said measures such as income-tax cuts and GST rate rationalisation, along with low inflation, augured well for private consumption. The government’s capex thrust had also translated into sustained double-digit investment growth for two consecutive quarters, she said.
Among the broad sectors, services led growth at 10%, although this was slower than 11.5% in the previous quarter. Industry expanded at a three-quarter high of 7.7%, while agriculture growth eased to 3.6% from 3.9%.
Within industry, manufacturing grew 9.2%, its fastest pace in three quarters, while electricity and other utility services expanded 8.9%, an eight-quarter high. Mining was the outlier, contracting 2.4%.
Nominal GDP growth accelerated to an eight-quarter high of 10.3% in April-June from 8.1% a year earlier. A pick-up in nominal growth through the year, aided by higher inflation, could also provide some support to the Centre’s fiscal arithmetic at a time when the West Asia war has increased expenditure pressures.
The strong growth print could give the RBI’s Monetary Policy Committee greater room to focus on inflation and potentially raise interest rates later in the year. The central bank currently expects FY27 GDP growth of 6.7%, implying some moderation in the coming quarters.
MoSPI also revised GDP estimates for the previous three financial years, incorporating a new Output Producer Price Index, a Banking Services Price Index with a 2022-23 base year and updated administrative data.
The revisions raised growth by 0.1 percentage point in each of the past three years. GDP growth is now estimated at 7.8% in FY26, 7.2% in FY25 and 7.3% in FY24.
“We expect growth to strengthen gradually towards the end of the year and into 2027, supported by resilient household demand and a recovery in investment,” said Alexandra Hermann Prasad, lead India economist at Oxford Economics. Healthy corporate balance sheets, robust credit growth and favourable financing conditions should support capital spending, although geopolitical uncertainty could temper the recovery, she added.
TOPICSeconomic growthThis article was first uploaded on August thirty-one, twenty twenty-six, at thirty-four minutes past nine in the night. © The Indian Express (P) Ltd