It is heartening to see multiple engines firing, in times that were considered adverse
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The economy has pulled a rabbit out of the hat once again, with real GDP (Gross Domestic Product) for the first quarter of FY27 expanding by 7.8 per cent, which is a much faster pace than either the central bank’s projection of 7 per cent or private agencies’ 7-7.3 per cent forecast.It is heartening to see multiple engines firing, in times that were considered adverse. One, agriculture and allied activities have managed 3.6 per cent growth (against 4.4 per cent last year), despite the ongoing El Nino. Though the overall rainfall deficit remains at nearly 14 per cent till date, kharif sowing has made reasonable progress with acreage just 2 per cent short of last year’s levels. Two, manufacturing (9.2 per cent growth against 8.3 per cent last year) and construction (7.7 per cent versus 5.2 per cent) have shown good traction despite Iran war-related supply disruptions and spiralling energy and input costs. More granular data from corporate results suggest that buoyancy in manufacturing is being powered by uptick in automobile demand, rising electronics production, electric vehicle adoption and clean energy transition. Three, exports have seen some acceleration despite the war, doubling their growth rate to 12 per cent in Q1 FY27 from 6 per cent in the same quarter last year. Exports out of India are likely benefiting from a stronger yuan and a weaker rupee. This is an advantage that can quickly wear off. However, there’s also structural diversification underway in exports, with manufacturers now tapping into expanding export opportunities for precision manufacturing, electronics, defence and aerospace. This will hopefully last.On the expenditure side, investment demand has done the heavy lifting with Gross Fixed Capital Formation (GFCF) growing 11.9 per cent in real terms this quarter, compared to just 5.8 per cent during the same time last year. While government capital expenditure grew by 20 per cent plus, private capex, defying expectations, picked up on the back of strong demand for automobiles and durables, export traction and inbound data centre investments. PFCE (Private Final Consumption Expenditure) maintained 7.1 per cent growth (6.8 per cent last year). The impact of the Iran war on consumers seems to have been contained by low interest rates which have kept EMIs under check.While the real economy was buoyant in Q1, nominal GDP expanded just 10.3 per cent — substantially undershooting forecasts of 13-14 per cent. This is attributed to the statistics office moving to the vastly improved double deflator method with granular producer prices for estimating GDP, instead of the earlier rough-cut method of using CPI or WPI. The low growth in nominal GDP can derail this year’s fiscal deficit target, given the escalation in subsidies caused by the Iran war. The trend of India’s GDP growth continually overshooting estimates also puts pressure on the Monetary Policy Committee to hike rates — if inflation trends up in the festive months.Published on September 1, 2026
