India’s economy unexpectedly expanded 7.8% year-on-year in the April-June quarter, picking up from 7.4% in the previous three months, according to government data released on Friday.
With that, India remains the fastest growing major economy, as China’s GDP growth rate came in at 5.2% and United States’ at 3.3% in the three months to 30 June.
Economists polled by Reuters had forecast India’s GDP growth rate to ease to 6.7% in Q1, and that the economy would continue to slow due to 50% US tariffs on exports. Instead, the fourth largest economy in the world has expanded to the highest since January-March 2024, when it grew 8.4% year-on-year.
The gross value added (GVA), excluding indirect tax and subsidy, rose 7.6% in Q1 FY26, as against 6.8% in Q4 FY25 and 6.5% in Q1 FY25, government data showed.
India GDP Growth: By Sector (YoY)
- Agriculture grew 3.7% in Q1 FY26 vs 1.5% in Q1 FY25
- Manufacturing grew 7.7% in Q1 FY26 vs 7.6% in Q1 FY25
Earlier this month, the Reserve Bank of India had projected India’s real GDP growth rate at 6.5% for FY26, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%.
“The super healthy GDP growth print in the first quarter has gotten a temporary boost from extremely soft deflator, front-loaded government spending (unlike last year), along with front loaded exports to the US,” Madhavi Arora, lead economist at Emkay Global, said in a note on Friday. “Some of these factors will reverse as we move ahead.”
{{/usCountry}}“The super healthy GDP growth print in the first quarter has gotten a temporary boost from extremely soft deflator, front-loaded government spending (unlike last year), along with front loaded exports to the US,” Madhavi Arora, lead economist at Emkay Global, said in a note on Friday. “Some of these factors will reverse as we move ahead.”
{{/usCountry}}“Besides, the effective macro hit from the 50% tariff imposition will start to feed via exports and have a domino effect on employment, wages and private consumption. This could further dampen private investment outlook and hinder growth.”
“However, on the face of it, a softer deflator effect and some consumption buffer from GST cuts could offset the hit in real GDP growth as we move to calendar year 2026.”
India’s Fiscal Deficit
India’s fiscal deficit increased to 29.9% of the full-year target at the end of July, according to data released by the Controller General of Accounts on Friday. It was at 17.9% of the full-year target at the end of first quarter (April-June).
In absolute terms, the fiscal deficit—or gap between the government expenditure and revenue —was ₹4,68,416 crore in the April-July period of the 2025-26 fiscal year. The government estimates the fiscal deficit at 4.4% of GDP, or ₹15.69 lakh crore, in FY26.