NEW DELHI: India’s economy grew at an unexpected 7.8% in the first quarter of fiscal year 2026, making it the world’s fastest-growing major economy. The growth rate, which rose from 7.4% in the previous quarter, was more than the 6.7% predicted by economists in a Reuters poll. It is the strongest rise since the first quarter of 2024.
Economists, on the other hand, are warning that this strong performance might not last. Madhavi Arora, the head economist at Emkay Global, said that the strong rise was mostly attributable to short-term causes. These included “front-loaded government spending,” which was different from the reduction in spending that happened during the 2024 Lok Sabha elections, and a big rise in exports to the US right before the new 50% tariffs went into force.
Here are the five main reasons behind this growth spike in more detail:
Government spending went up a lot: Government capital spending went up 52% from the same time last year to ₹2.8 lakh crore in the April–June quarter. This front-loading of public investment, which included almost doubling the number of new project announcements, not only raised the headline GDP but also the Gross Value Added (GVA), which is a better indication of underlying economic activity. GVA went risen from 6.8% in the same quarter last year to 7.6% in Q1 FY26.
Front-loaded Exports: India’s exports saw a big, but short-lived, boost as companies rushed to send items to the US before the Trump administration put in place harsh 50% tariffs on August 27. Sakshi Gupta, HDFC Bank’s chief economist, said that “frontloaded demand from economies like the US” caused a 5.9% rise in exports of goods and services in April.
Resilient Service industry: The services industry, especially public administration and financial services, stayed a major source of growth. The National Statistics Office said that the GVA for financial services went up 9.5% in the first quarter, while the GVA for public administration went up 9.7%. This strength helped to make up for weaknesses in other areas, such as mining and agriculture.
Strong Demand in Rural Areas: A good monsoon helped agriculture thrive, which in turn raised rural income and spending. The economy grew as a whole because the agricultural sector grew by 3.7% in Q1 FY26.
India’s retail inflation is at its lowest level in eight years, at 1.55%. This gave firms additional pricing power, which helped real GDP growth even more.
The Road Ahead: A Quick Boost?
Even though the first quarter was good, most economists think that a slowdown is coming. The things that were driving development for a short time are now fading away, and outside factors, especially the US tariffs, are going to have an effect. Experts say that the 50% tariffs might cut India’s GDP growth by as much as 1 percentage point in the July-September quarter and beyond.
Even while government spending has gone increased, private capital spending hasn’t caught up yet, and urban consumption is still slow. Even though the low inflation rate is good, it also means that nominal GDP growth is only about 8%, which might affect tax collections and business profits.
Analysts think that the higher-than-expected growth report has also made it less likely that the Reserve Bank of India (RBI) will decrease the repo rate. Aditi Nayar, Chief Economist at ICRA, said that the GDP print “has put an end to any hopes that tariff-related problems could lead to monetary easing in the October 2025 policy review.”
Sachidanand Shukla, the group chief economist at Larsen & Toubro, said, “The numbers from the first quarter have surprised us all.” But the most important thing to remember is not to get too excited with the figures. This is the highest point for growth numbers, and they will go down for the rest of the year.
The RBI’s earlier estimates for the whole fiscal year 2026, which predicted 6.5% growth, now look more likely because of the short-term variables that affected Q1’s performance.