Capital formation, exports fuel 7.8% Q1 GDP growth

Despite the conflict in West Asia, which delivered a supply and price shock to crude oil and key imports, the Indian economy remained resilient, registering 7.8% growth in the first quarter of the fiscal year, powered by strong expansion in investments and exports. With the monsoon deficit lower than anticipated, expectations are that the economy will continue to grow at a robust pace over the next two quarters, with GDP growth for FY27 seen at 7%.

Official data released on Monday showed that real GDP grew by an estimated 7.8% in the first quarter of FY27, compared with 6.9% a year ago, but slowed from 8.6% in the fourth quarter of the previous fiscal year. Nominal GDP grew 10.3% in Q1 FY27, against 8.1% during Q1 FY26. Gross value added registered growth of 8.2%.

“Domestic activity held up through July… industrial momentum remained strong… agriculture is progressing steadily,” Chief Economic Adviser V. Anantha Nageswaran told reporters at a press briefing, adding that, in the near term, while domestic demand and investment remain the anchors, food prices, monsoon progression and global uncertainty deserve monitoring.

Among sectors, financial services, real estate, IT and professional services grew at the fastest pace, expanding 12.1% in the first quarter of the fiscal year, while manufacturing also grew a robust 9.2%.

Meanwhile, gross fixed capital formation grew 11.9% in the first quarter of the fiscal year, while private final consumption expenditure remained healthy, with growth of 7.1%. Exports also registered 12% growth during the quarter.

“GDP growth in the first quarter of 2026-27 suggests that despite the adverse economic situation due to the West Asia crisis, the Indian economy has remained resilient. Strong investment momentum since the second quarter of FY26 has continued and shown an upward trajectory. The government, both the Centre and states, along with central public sector enterprises, has continued to undertake capex,” said Devendra Pant, Chief Economist, India Ratings & Research. Aggregate capex of the Centre, states and CPSEs grew 16.9% in Q1 FY27, against 11.4% in FY26, he said, adding that GDP growth in FY27 is likely to cross 7%.

Madan Sabnavis, Chief Economist, Bank of Baroda, also said that given the higher growth rate, GDP growth for the year could rise to 7%, making it the fourth successive year of above-7% growth.

“Growth has been spearheaded by capital formation, which has increased to 34.3% in nominal terms from 31.4% last year, with growth of 20.4%. This is a major takeaway as it involves both private and government expenditure, with the former being driven by data centres and power, besides metals,” he underlined.
From Q1 FY27, the Ministry of Statistics and Programme Implementation (MOSPI) has also used a double-deflation approach to estimate the GVA of the manufacturing sector.

Significantly, MOSPI also released the National Accounts Statistics 2026 on Monday, revising GDP growth rates upwards for FY24, FY25 and FY26. GDP growth in FY26 has been revised to 7.8% from 7.7%; for FY25, to 7.2% from 7.1%; and for FY24, to 7.3% from 7.2%.

The ministry said the revision was due to the incorporation of updated indicators, including the index of industrial production and the producer price index.