How the ‘dead economy’ grew at 7.8%, fastest in five quarters

In his tirade against India for buying Russian oil, US President Donald Trump referred to India as a “dead economy”. Contrary to his allegations, India’s GDP grew at the fastest rate in the last five quarters at 7.8% vs 6.5% in the same period last year. The macro indicators suggest India’s economy is firing on all cylinders as growth across agriculture, manufacturing, and services collectively led to the sharp growth. Despite the bleak atmosphere around tariffs, India’s economy posted a resilient performance.

Strong expansion in capital expenditure

The government impetus to expansion was back on track in Q1 with a 52% rise in government capital expenditure. The total capital expenditure stood at ₹2.75 lakh crore for the Q1 of the current fiscal year, which is also 25% of the total budget estimate for FY26. This marks a substantial rise compared to the previous year’s same period, which was largely less due to the election in the quarter. The total expenditure for FY26 stands substantially higher at ₹11.21 lakh crore, which is also 4.4% of the GDP.

Rural boost to the GDP

The agriculture sector grew by 3.1% for the quarter compared to 1.5% in the previous year same quarter. The growth was aided by a strong and early monsoon arrival in the country, leading to high production and consumption in the economy.

Steady manufacturing growth

The manufacturing sector grew by 7.7% for the quarter, slightly higher than the previous year at 7.6%. The overall manufacturing growth was supported by strong export demand, increased government spending and improved capacity utilisation. The steady growth was also reflected in Q1 earnings as the topline for the top 50 companies of the country in the NIFTY50 grew in mid-single digits.

Robust growth in services

The services sector posted the highest growth among all the other sectors at 9.3%. The Financial services, real estate and professional services growth was at 9.5% vs 6.5% in the same period last year, and trade, hotels, transport and communications and broadcasting services grew by 8.6% annually vs 5.4% in the same period last year.

Outlook for FY26

The coming quarter’s growth may see a temporary dip in momentum due to domestic and external factors like tariffs, GST rationalisation and others. Experts predict that the 50% US tariffs could impact up to 1% of the GDP. However, growth in the subsequent quarters is expected to remain in the expected range of 6.5% driven by GST reforms.