India’s Q1 GDP growth quickens to 7.8% as consumption, capex offset US-Iran war shock

India's GDP growth accelerated to 7.8% in the first quarter of FY27, surpassing the revised 6.9% growth rate from the same period last year. This uptick was fueled by strong consumption, exports, and robust government capital expenditure, despite disruptions caused by the US-Iran war and soaring commodity prices. The growth rate remained consistent with the previous quarter's 7.8% expansion.

Gross value added, a key measure of economic activity, expanded at 8.2% in real terms, up from 7.1% in the prior fiscal period. Nominal GVA growth, however, was higher at 11.5% in real terms. An Economic Times poll had predicted a 7.3% growth rate for Q1, which was higher than the Reserve Bank of India's forecast of 7%.

India's nominal GDP expanded by 10.3% in Q1, compared to 8.1% a year earlier. In primary sectors, agricultural growth moderated to 3.6% YoY from 4.4% a year earlier, while the mining sector contracted by 2.4% compared to a stellar 12.4% growth in the same period last fiscal. Industrial growth, particularly in manufacturing, maintained its solid momentum, growing 9.2% in Q1 compared to 8.3% a year ago.

The electricity sector witnessed a remarkable turnaround, with growth surging to 8.9% after shrinking 1.8% the previous year. Construction activity also showed a healthy increase, expanding by 7.7% against 5.2% in the prior fiscal.

Economists attribute these growth figures to the recent reduction in Goods and Services Tax (GST) rates and income tax cuts, which likely bolstered household disposable income and demand while mitigating the impact of rising inflation. However, they expect the recent private investment surge to be temporary. The increased crude oil prices, which have breached the $90-a-barrel mark and may rise further, pose risks to the outlook for India, the world's third-largest economy that imports over 85% of its oil.