New Delhi: India's economy surged to a better-than-expected five-quarter high of 7.8% in the April-June period, driven by strong expansion in manufacturing and services, official data released Friday showed.
Experts said this pace may not be sustained as US tariffs weigh on the economy. India's gross domestic product (GDP) grew 7.4% in the preceding quarter and 6.5% in the year before. An ET poll had forecast growth at a median 6.7%.
The US imposed 50% tariffs on Wednesday over India's continuing imports of Russian oil, the highest levy alongside Brazil.
"The critical aspect would be sustenance of this growth momentum," said Rajani Sinha, chief economist, CareEdge Ratings. "Given that the global trade scenario remains uncertain, domestic demand enabling measures by the government would be critical in the coming quarters."
Experts expect measures to support growth. "We expect some policy interventions to help offset the adverse impact of the tariff on exporters," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank
Chief economic advisor V Anantha Nageswaran admitted there were downside risks to growth but said India was looking at the US tariffs as an opportunity to move forward on reforms and deregulation besides exploring other markets. "We expect GDP growth to remain within the targeted band of 6.3%-6.8%," he said, adding that domestic demand is expected to strengthen in the coming quarters, especially with goods and services tax (GST) reforms ahead of the festive season.
Key drivers
The Economic Survey, authored by the chief economic advisor, had in February projected FY26 growth at 6.3%-6.8%.
Gross value added (GVA) growth touched a six-quarter high of 7.6% compared with 6.5% in the year earlier. Nominal growth came in at 8.8% in the period under review.
Frontloaded government spending and firm consumption aided growth in the first quarter.
Private final consumption expenditure (PFCE) grew 7% in the June quarter, up from a five-quarter low of 6% in the preceding three-month period, likely reflecting better rural demand with a rise in tractor and fast-moving consumer goods (FMCG) sales. Government expenditure boosted investment growth to 7.8% from 6.7% a year ago following a 52% jump in central government capex. Farm output rose 3.7%, moderating from the quarter before but higher than 1.5% year ago.
“Consumption was supported by the rationalisation of income tax slabs, easing food inflation, a favourable monsoon, and recent RBI rate cuts,” said Sinha.
The services sector was the standout performer, expanding 9.3% in the June quarter, a two-year high, compared with 7.3% in the previous quarter and 6.8% in the year before.
“Better traction in trade, hotels, restaurants and communications, and public administration, which is a lot of government spending, drove the service sector growth,” said Sakshi Gupta, principal economist at HDFC Bank.
Within services, ‘public administration and other services’ grew at a 12-quarter high of 9.8%.
Manufacturing grew 7.7% in the June quarter compared with 4.8% in the preceding one and 7.6% in the year earlier.
“This was expected even though the IIP (Index of Industrial Production) growth was lower, as value added based on corporate profits was impressive in this quarter,” said Madan Sabnavis, chief economist at Bank of Baroda.
Sabnavis pointed out that low price deflators had contributed to the high growth number.
“Nominal growth has been just 8.8% which, when juxtaposed with negative inflation numbers, works its way to the real GDP growth numbers,” he added.
Consumption and investment have grown 9.1% and 8.3%, respectively, in nominal terms.
Interestingly, the share of exports in GDP has remained unchanged at 20.9%, which hence does not indicate any frontloading of exports to the US in this period, Sabnavis said.
Outlook
The outlook for FY26, however, remains clouded by higher US tariffs on Indian exports.
“Notwithstanding this, India would remain a key growth engine and help the world navigate in the current treacherous waters,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).
An ET poll had pegged FY26 growth at a median of 6.3%. The central bank has projected 6.5% growth.
CareEdge Ratings has revised FY26 GDP growth projection upward to around 6.5% under the base-case scenario, given the upside surprise in the June quarter number. Crisil expects India’s GDP to grow 6.5% this fiscal year with downside risks from the US tariff hikes.
In contrast, ICRA has kept its forecast unchanged at 6%, highlighting risks from slower government capex momentum and the looming tariff hit to exports.
Experts said this pace may not be sustained as US tariffs weigh on the economy. India's gross domestic product (GDP) grew 7.4% in the preceding quarter and 6.5% in the year before. An ET poll had forecast growth at a median 6.7%.
The US imposed 50% tariffs on Wednesday over India's continuing imports of Russian oil, the highest levy alongside Brazil.
"The critical aspect would be sustenance of this growth momentum," said Rajani Sinha, chief economist, CareEdge Ratings. "Given that the global trade scenario remains uncertain, domestic demand enabling measures by the government would be critical in the coming quarters."
Experts expect measures to support growth. "We expect some policy interventions to help offset the adverse impact of the tariff on exporters," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank
Chief economic advisor V Anantha Nageswaran admitted there were downside risks to growth but said India was looking at the US tariffs as an opportunity to move forward on reforms and deregulation besides exploring other markets. "We expect GDP growth to remain within the targeted band of 6.3%-6.8%," he said, adding that domestic demand is expected to strengthen in the coming quarters, especially with goods and services tax (GST) reforms ahead of the festive season.
Key drivers
The Economic Survey, authored by the chief economic advisor, had in February projected FY26 growth at 6.3%-6.8%.
Gross value added (GVA) growth touched a six-quarter high of 7.6% compared with 6.5% in the year earlier. Nominal growth came in at 8.8% in the period under review.
Frontloaded government spending and firm consumption aided growth in the first quarter.
Private final consumption expenditure (PFCE) grew 7% in the June quarter, up from a five-quarter low of 6% in the preceding three-month period, likely reflecting better rural demand with a rise in tractor and fast-moving consumer goods (FMCG) sales. Government expenditure boosted investment growth to 7.8% from 6.7% a year ago following a 52% jump in central government capex. Farm output rose 3.7%, moderating from the quarter before but higher than 1.5% year ago.
“Consumption was supported by the rationalisation of income tax slabs, easing food inflation, a favourable monsoon, and recent RBI rate cuts,” said Sinha.
The services sector was the standout performer, expanding 9.3% in the June quarter, a two-year high, compared with 7.3% in the previous quarter and 6.8% in the year before.
“Better traction in trade, hotels, restaurants and communications, and public administration, which is a lot of government spending, drove the service sector growth,” said Sakshi Gupta, principal economist at HDFC Bank.
Within services, ‘public administration and other services’ grew at a 12-quarter high of 9.8%.
Manufacturing grew 7.7% in the June quarter compared with 4.8% in the preceding one and 7.6% in the year earlier.
“This was expected even though the IIP (Index of Industrial Production) growth was lower, as value added based on corporate profits was impressive in this quarter,” said Madan Sabnavis, chief economist at Bank of Baroda.
Sabnavis pointed out that low price deflators had contributed to the high growth number.
“Nominal growth has been just 8.8% which, when juxtaposed with negative inflation numbers, works its way to the real GDP growth numbers,” he added.
Consumption and investment have grown 9.1% and 8.3%, respectively, in nominal terms.
Interestingly, the share of exports in GDP has remained unchanged at 20.9%, which hence does not indicate any frontloading of exports to the US in this period, Sabnavis said.
Outlook
The outlook for FY26, however, remains clouded by higher US tariffs on Indian exports.
“Notwithstanding this, India would remain a key growth engine and help the world navigate in the current treacherous waters,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).
An ET poll had pegged FY26 growth at a median of 6.3%. The central bank has projected 6.5% growth.
CareEdge Ratings has revised FY26 GDP growth projection upward to around 6.5% under the base-case scenario, given the upside surprise in the June quarter number. Crisil expects India’s GDP to grow 6.5% this fiscal year with downside risks from the US tariff hikes.
In contrast, ICRA has kept its forecast unchanged at 6%, highlighting risks from slower government capex momentum and the looming tariff hit to exports.
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