India’s real GDP growth surged to a five-quarter high of 7.8% in Q1 FY2026 from 7.4% in Q4 FY2025 (refer Exhibit 1), sharply exceeding ICRA’s forecast of 6.7% for the quarter. The steep turnaround in GFCE to YoY growth (to +7.4% from -1.8%) and an acceleration in PFCE (to +7.0% from +6.0%) pushed up the overall GDP growth in Q1 FY2026 compared to Q4 FY2025. In contrast, there was a moderation in the GFCF growth (to +7.8% from +9.4%) and a drag from net exports (-5.0% of GDP vs. +3.7% of GDP) in Q1 FY2026, against Q4 FY2025. 

 In addition, the YoY growth in GVA at basic prices unexpectedly rose to a six-quarter high of 7.6% in Q1 FY2026 from 6.8% in Q4 FY2025 (ICRA exp: +6.4%). This was led by a higher-than expected acceleration in manufacturing (to +7.7% from +4.8%) and services (to +9.3% from +7.3%) sectors, even as agriculture, forestry and fishing (to +3.7% from +5.4%) witnessed a larger-than-anticipated moderation. Notably, the wedge between the GDP and GVA growth declined sharply to 18 bps in Q1 FY2026 from 62 bps in Q4 FY2025, reflecting the slowdown in net indirect tax growth (to +10.3% from +12.7%).

EXHIBIT 1: YoY growth in GDP (at Constant 2011-12 Prices) and contribution of components

Source: NSO; CEIC; ICRA Research