India GDP Growth Hits 7.8% in Q1FY26, But Can the Momentum Last Amid Tariffs and Weak Demand?

India’s GDP grew 7.8% in the first quarter of FY26, significantly higher than consensus estimates of 6.7%, according to a report by Emkay Research. The growth also marked a five-quarter high, compared with 7.4% in Q4FY25. Gross Value Added (GVA) rose 7.6%, while nominal GDP growth slowed to 8.8%.

“This superlative surprise stems from an extremely soft deflator-led technical boost, front-loaded government spending, and front-loaded exports to the U.S.,” Emkay Research economists Madhavi Arora and Harshal Patel noted in the report.

Services Sector Leads Growth
The services sector expanded 9.3%, driven by financial services, real estate, trade, hotels, and transportation. Lower wholesale price inflation (WPI) contributed to a deflator boost. Manufacturing grew 7.7%, supported by lower input costs, though topline growth remained weak. Agriculture recorded a healthy 3.7% expansion on solid sowing activity.

Consumption and Investment Pick Up
Private consumption improved to 7% from 6% in the previous quarter, while government consumption rebounded sharply to 7.4% after contracting in Q4FY25. Gross Fixed Capital Formation (GFCF) grew 7.8%, with both the Centre and states front-loading capital expenditure—up 42% year-on-year. Exports rose 6.3% as shipments were advanced ahead of U.S. tariff hikes, but imports surged 11%, keeping net exports a drag.

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Outlook: Growth Buffers and Risks Ahead
Emkay expects FY26 real GDP growth at 6.5%, up 50 bps from earlier estimates, though it warned of volatility. “The 50% tariff imposition will feed through exports and have a domino effect on employment, wages, and private consumption – further dampening the private investment outlook,” the report said.
The brokerage flagged that nominal GDP growth may collapse to sub-8%, posing risks for tax collections and fiscal deficit management.

All other macro and market variables—be these fiscal deficit/GDP, sovereign debt/GDP, credit growth, or corporate earnings—will need to be re-calibrated accordingly, Emkay cautioned.