GDP growth surprises on the upside, expands 7.8% in Q1FY27
Strong investment, resilient consumption and robust manufacturing and services activity lift Q1 growth, while a better monsoon outlook supports optimism for 7% GDP growth in FY27.
The 7.8% GDP growth in Q1FY27 was supported by a sharp improvement in investment activity. (AI Image)
India’s economy started FY27 on a strong note, with real GDP growth accelerating to 7.8% in Q1FY27, up from 6.9% in the same quarter last year. “The growth was also significantly higher than the 7.2% expected by us,” said a Bank of Baroda Research Report on Monday.
The strong performance was broad-based, with manufacturing and services providing the biggest boost. Consumption demand remained healthy, while investment activity picked up sharply. Despite continuing geopolitical uncertainties, the economy has continued to show resilience across key sectors.
“With the monsoon gaining momentum, the agriculture sector is also expected to improve in the coming quarters. Overall, we expect India’s economy to grow by around 7% in FY27, supported by a strong first half, while risks from the external environment remain broadly balanced,” noted Jahnavi Prabhakar, Economist, Bank of Baroda.
Investment and consumption drive Q1 growth
The 7.8% GDP growth in Q1FY27 was supported by a sharp improvement in investment activity. Investment spending grew 11.9%, compared with 5.8% in Q1FY26, signalling stronger business activity and capital formation.
Consumer spending also remained resilient. Private consumption expenditure grew 7.1% in Q1FY27, marginally higher than the 6.8% growth recorded a year earlier.
Exports provided another boost, growing by around 12%, compared with 6% in the corresponding period last year. Government spending, however, remained relatively steady, growing 4.3% against 4.5% a year earlier.
Imports contracted by 1.1%, compared with 5.3% growth in Q1FY26.
In nominal terms, GDP growth accelerated to 10.3% in Q1FY27 from 8.1% in the year-ago quarter. Private consumption expenditure grew 9.9%, compared with 8.3% a year earlier, while government spending increased 9.5%, against 4% in Q1FY26.
Investment was particularly strong, recording 20.4% growth compared with 5.4% in the corresponding quarter last year. Both exports and imports also recorded strong nominal growth of 25.8% and 30.9%, respectively.
Manufacturing and services remain key growth engines
Gross Value Added (GVA) growth strengthened to 8.2% in Q1FY27, from 7% in Q1FY26, reflecting healthy momentum across several sectors.
“Manufacturing continued to be one of the brightest spots, growing 9.2%, compared with 8.3% a year earlier. Strong corporate earnings and improving industrial activity supported the sector,” said Prabhakar.
Electricity generation also recorded a sharp turnaround, growing 8.9% after contracting 1.8% in Q1FY26. Construction activity strengthened as well, with growth accelerating to 7.7% from 5.2%.
Within services, financial services posted particularly strong growth of 12.1%, up from 8.8% in the year-ago quarter. Public administration also improved, growing 7.5% compared with 4.6% earlier.
However, some sectors remained under pressure. Trade, hotels and transport grew 8.5%, slower than the 9.8% recorded in Q1FY26.
Mining was the biggest drag, contracting 2.4% after registering 12.4% growth a year earlier. Agriculture growth also moderated to 3.6% from 4.4%, partly reflecting the impact of heatwave conditions and the delayed arrival of the southwest monsoon.
FY27 outlook remains positive
The strong Q1 performance gives the economy a solid base for FY27. We expect GDP growth to come in at around 7% for the full financial year, above the RBI’s current projection of 6.7%.
“Growth is likely to moderate somewhat in the second half of the year, but the first half is expected to remain relatively strong. Improving monsoon activity during July and August should support rural incomes and consumption demand, leading to a broader recovery in the consumption cycle,” said Prabhaka.
Exports and imports are also expected to remain supportive in the near term. While geopolitical tensions and the ongoing war continue to pose risks to the global economic outlook, India’s domestic growth drivers remain relatively strong.
Overall, the economy appears well placed to maintain its momentum, with 7% growth in FY27 looking achievable and risks broadly balanced.
