Offering a sliver of hope amid the uncertain global environment marred by the prolonged West Asia war, the Indian economy exhibited continued resilience by posting a real GDP growth rate of 7.8% in the April-June quarter.
While agricultural growth remained subdued, manufacturing and services surged to bolster growth beyond even the 7% estimate by the Reserve Bank of India. A sharp surge of nearly 12% in gross fixed capital formation — the proxy for investments in the economy — also provided the required push to the overall growth along with a firm growth in private consumption.
The key factors that worked
Manufacturing and services: A strong manufacturing and services growth along with a sharp rise in investments helped propel the growth rate to 7.8% in Q1.
While the manufacturing sector grew by 9.2% in April-June, up from 8.3% in the same quarter last year, the tertiary sector – or services – expanded 10%, higher than 8% a year ago. Agriculture recorded a modest growth of 3.6% in Q1 as against 4.4% in the corresponding quarter a year ago.
But, the CEA said the impact for the farm sector has fared better than what was expected in June when the monsoon shortfall was high. “By and large the developments on this have been incrementally for the better, both with respect to output and with respect to inflation and on the food front,” he said.
Demand push: The impact of a strong demand push from both rural and urban areas was also visible in the Goods and Services Tax (GST) collections, automobile sales along with a rise in core exports — exports excluding oil, gems and jewellery. Air passenger traffic, however, moderated in June, amid higher costs and operational disruptions. “The proxies of urban and rural demand — in the last three months, whether it is rural or urban auto sales of two-, three-, and four- wheelers — we have seen a very good growth in the automobile purchases and that is very good news as far as the underlying sources of demand and the economy is concerned. That is also one more vindication of the buoyancy of economic activity,” Nageswaran said.
Rural income-oriented policy measures such as PM Kisan, higher minimum support prices and ensuring affordability of fertiliser prices supported the rural consumption demand, he added.
Investment activity: The indicator for investments, Gross Fixed Capital Formation (GFCF), rose 11.9%, double the 5.8% growth recorded in the same period last year, which experts said could support growth in the coming quarters also. “One factor which augurs very well for the future is the gross fixed capital formation, which is at 12% in the first quarter, which signals a very healthy trend going forward that the capital investments have been so high,” Saurabh Garg, Secretary, Ministry of Statistics and Programme Implementation said.
Interestingly, when seen in current prices – or without adjusting for inflation – GFCF growth in April-June was a massive 20.4%, taking its share in the GDP to 34.3%, well above last year’s 31.4%.
Increasing the share of investment in GDP is crucial to sustaining a high growth rate, with S Mahendra Dev, Chairman of the Economic Advisory Council to the Prime Minister, having previously noted that the country must lift investment to 34-35% of GDP to sustain 7%+ growth.
The resilience
The key message is of “resilience” — that’s what Chief Economic Advisor V Anantha Nageswaran pointed towards after the release of the first quarter Gross Domestic Product (GDP) growth numbers. “What we are witnessing is continuous resilience in the Indian growth performance. I think that’s the key message here. And this resilience in the quarterly data is well-backed by high frequency indicators,” Nageswaran said.
The CEA said all the three sectors have contributed — agriculture, manufacturing and services — despite the West Asia-related uncertainties. The numbers have been by and large better than what was feared in the backdrop of the simmering conflict in West Asia, he said.
The lurking risks
One of the biggest risks lurking over the growth prospects of India is high crude oil prices, especially given the flare-ups in the war between the US and Iran. “There is always a lurking risk of crude oil supply disruption, which probably will prevent the oil prices from coming down materially and sustainably below $80 per barrel in terms of the Brent crude. However, more than the rise of crude oil, what we should be watching are the prices of petroleum products such as diesel and natural gas which have basically made it more expensive and that will have an implication for private consumption growth in parts of Europe and in the US,” Nageswaran said.
So far, the impact on energy prices for India has not been as large as thought before, with households in particular being partially shielded by the government. But globally, higher prices of petroleum products could pose a risk to global demand and therefore, dim the prospects for export growth in the coming years. “We need to keep our diversification efforts going on and also ensure cost competitiveness,” the CEA said.
Also, there is caution with regard to the outlook for domestic food inflation and agricultural output, with an intensifying El Niño expected to peak in late 2026. “This could pose downside risks to crop yields during the late-August flowering and grain-formation stages, while also affecting soil moisture and the winter temperatures required for the upcoming Rabi crops, particularly wheat and mustard,” the Ministry of Finance said in its monthly economic review released Monday.
Secretary, Ministry of Statistics and Programme Implementation, Saurabh Garg (Right), addresses a press conference on the release of Quarterly Estimates of GDP for Q1 of FY 2026-27 at the National Media Centre, in New Delhi on Monday. (ANI Photo) 
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