New Delhi [India], August 29 : India's real GDP grew by 7.8% in Q1 FY26, reflecting strengthening momentum in the economy, anchored by strong macroeconomic fundamentals, sources in the Finance Ministry said on Friday, noting that the High Frequency Indicators had been green-signalling the potentially higher numbers.
The sources said that supply-side growth was driven by manufacturing, construction, and services, reflecting an all-round growth.
On the demand side, robust expansion in Private Final Consumption Expenditure (7.0%) and Gross Fixed Capital Formation (7.8%) underpinned performance, the sources said, adding that that Private Final Consumption Expenditure's (PFCE) share in GDP rose to 60.3%, the highest first-quarter level in 15 years.
The Government's capital expenditure also sustained the momentum in Gross Fixed Capital Formation's (GFCF) growth.
Official data on Friday showed that India's real GDP has grown by 7.8 per cent in the April-June quarter of the financial year 2025-26 over the growth rate of 6.5 per cent in the same quarter of the previous fiscal.
India's nominal GDP grew at an 8.8 per cent rate during the April-June quarter.
The Agriculture and Allied Sector has observed the Real GVA (gross value addition) growth rate of 3.7 per cent, as compared to the growth rate of 1.5 per cent registered in Q1 of the last financial year.
Secondary Sectors, prominently Manufacturing (7.7 per cent) and Construction (7.6 per cent) sector have registered above 7.5 per cent growth rate at Constant Prices in this quarter.
Mining and Quarrying (-3.1 per cent) and Electricity, Gas, Water Supply and Other Utility Services Sector (0.5 per cent) have seen a moderated real growth rate during Q1 of 2025-26.
In 2024-25, the Indian economy grew by 6.5 per cent in real terms.
The quarter recorded the highest Q1 share of PFCE in 15 years, reflecting strong consumer demand. Agricultural activity remained robust, aided by Kharif sowing tracking at the higher end of its historical range and a sharp rise in real rural wages. Urban demand indicators such as FMCG sales and UPI transactions showed sustained momentum, while passenger vehicle sales in April-July were 21 per cent higher compared to the pre-pandemic average.
On the investment front, central government capital expenditure posted a significant 30.1 per cent increase over the average of the past three years. Private investment sentiment also improved, with new investment announcements rising 3.3 times on a year-on-year basis in Q1. Additionally, capacity utilisation remained high, signalling further manufacturing growth ahead.
Consumer price inflation cooled to an eight-year low in July 2025, providing relief on the price front. Formal sector job creation rose 1.6 times in the first quarter compared to last year. Although urban unemployment saw a marginal uptick, it remained well below pre-COVID levels, indicating overall labour market stability.
Looking ahead, high-frequency indicators for July suggest that the economic momentum is likely to carry forward into the upcoming quarters. The festive season, coupled with forthcoming GST rate changes, is expected to further boost domestic demand. Higher kharif sowing, comfortable food grain stocks, and above-normal rainfall should help keep food inflation under check.
The recent upgrade of India's sovereign rating by S&P to BBB reflects confidence in the country's strong fundamentals. Policy initiatives including a Task Force for Next-Gen Reforms, state deregulation, and easing interest rates are expected to reduce borrowing costs and spur consumption and investment.
The impact of US tariffs is expected to be transitory, with Indian manufacturers diversifying into new markets such as the UAE, Saudi Arabia, and Europe. Free Trade Agreements with the UK and Australia are also expected to boost exports.
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