Economy spurts 7.8% in Q1, fastest in 5 qtrs

Nominal GDP growth only 8.8%; agri, services shine 50% US tariff may weigh on momentum in rest of FY26

- ASIT RANJAN MISHRA

Beating forecasts, India's economic growth accelerated to a five-quarter high of 7.8 per cent in the April-June 2025 period, driven by a sharp rise in manufacturing and services, defying expectations of a sequential slowdown indicated by high-frequency data.

Most economists, however, believe the punitive 50 per cent additional tariff imposed by the Donald Trump administration in the US will weigh on growth momentum for the rest of FY26.

The Reserve Bank of India had projected gross domestic product (GDP) growth at 6.5 per cent for Q1FY26, while the most optimistic forecast came from the State Bank of India at 6.8-7 per cent.

Nominal GDP in the June quarter grew at a slower pace of 8.8 per cent, compared with the finance ministry's estimate of 10.1 per cent for full FY26. The gap reflected a sharp narrowing in the GDP deflator (1 per cent in Q1FY26 versus 3.4 per cent in Q4 FY25), due to softer retail and wholesale inflation. Since nominal growth is deflated by price indices to calculate real growth, weaker nominal expansion could complicate the government's efforts to meet fiscal deficit and debt-to-GDP targets.