India’s Q1 FY26 GDP Growth Seen at 6.7% on Strong Public Spending and Rural Demand

India's economy is projected to grow at a median rate of 6.7% in Q1 of FY26, according to a survey of 14 economists conducted by The Economic Times. Key drivers include strong government capital expenditure, rising rural demand, and a resilient services sector. 

Government Spending and Rural Demand Driving Growth

Construction and agriculture continue to contribute meaningfully to growth, while GST rationalisation is expected to further boost domestic demand. However, economists caution that global trade tensions and U.S. tariffs pose risks to the outlook. The official GDP numbers will be released by the National Statistics Office on August 29, 2025. 

Government capital spending surged by 52% year-on-year in Q1, underpinning the growth momentum. Export goods and services added 5.9%, driven partly by earlier demand from markets such as the U.S. 

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Sectoral Weaknesses and Global Risks

Not all sectors fared equally well, however. Industrial activity showed signs of weakness, with the Index of Industrial Production (IIP) expanding just 2% in Q1, compared to 5.4% a year ago. Manufacturing and mining lagged, affected by unseasonal monsoons and geopolitical headwinds. Indicators such as power supply, coal output, port cargo movement, air passenger traffic, cement production, and steel consumption underperformed. 

Economists emphasise that growth in Q1 is likely to moderate from the 7.4% pace in the March quarter, citing sluggish private investment and cautious consumer demand. 

Looking ahead, India’s annual GDP for FY26 is estimated at around 6.3%, slightly below the RBI projection of 6.5%, with a forecast range between 6.0% and 6.6%. GST simplification—moving to just two tax slabs of 5% and 18%—is expected to provide a further boost to domestic demand, potentially adding 20 basis points to growth. 

Economists highlight that while the domestic growth story remains compelling, global uncertainties remain a cloud. Concerns include ongoing trade tensions and high tariffs imposed by the U.S. that could disrupt exports. 

Conclusion

Q1 FY26 is looking robust, with India’s economy powering ahead at an estimated 6.7%, courtesy of elevated government investment, rural spending, and GST reforms. Nevertheless, uneven sectoral performance and external risks point to a cautious path forward. Investors and policymakers will be watching how private spending picks up and how global headwinds are managed through the rest of the year.