India’s National Statistics Office released Q1 (Apr-Jun) GDP numbers showing a stronger than expected expansion. Real GDP grew 7.8% year-on-year, up from 6.5% a year earlier. At current prices, nominal GDP rose 8.8%, with GDP at current prices estimated at ₹86.05 lakh crore and real GDP at ₹47.89 lakh crore.
On the surface the data is a positive macro surprise. The headline 7.8% print is the fastest quarterly gain in five quarters and was comfortably above many private forecasts and the RBI’s projections, underpinned by broad-based strength across the economy. Manufacturing and construction posted robust gains manufacturing around 7.7% and construction 7.6% while services showed an even stronger lift. The government’s official press note highlights broad-based momentum. GVA grew 7.6% with the services sector posting a blistering 9.3% gain. The release stresses resilient domestic demand, rising employment, and ongoing capex as the backbone of the expansion.
But the most interesting and policy-relevant part of this release is the gap (or lack of a large gap) between real and nominal growth and what it implies for pricing power, corporate revenues and public finances. In many circumstances, nominal GDP (growth at current prices) can better capture the economic reality because it reflects both volumes and prices and therefore has direct implications for tax revenues, corporate top-lines and debt sustainability. Where nominal growth is weak relative to real growth, it often signals falling prices/weak pricing power; where nominal growth outpaces real growth, inflation may be the driver. In Q1 the nominal rise of 8.8% is only modestly above the 7.8% real gain, suggesting subdued price momentum even as volumes expand. The growth in nominal GDP has declined as against 9.6% in the same period last fiscal. This is a clear indication that there is still some slackness in the economy.
Equity markets were reportedly underwhelmed by the print despite the nice real-growth headlines. Investors focused on cooling nominal growth, weak corporate earnings and external headwinds (including recent tariff moves) that could dent export demand and sentiment.
Policy implications are straightforward. A durable rebound in GDP volumes gives the government room to focus on reforms and capex, but muted nominal gains limit automatic revenue windfalls from higher inflation keeping fiscal discipline politically relevant. For the Reserve Bank, robust real growth with contained nominal pressures allows more policy space to prioritise financial stability and credit conditions rather than aggressively countering inflation.
Policy takeaway and risks
Q1 FY26 is a growth-positive start to the year. Real activity is healthy and broad based but the relatively modest nominal pickup means the recovery’s translation into tax receipts and market confidence is not automatic. The near-term watchlist is whether nominal growth accelerates (boosting earnings and receipts), and if private consumption strengthens sustainably, and how external shocks affect the export and investment outlook. If nominal momentum follows volumes, this quarter could mark the start of a more self-reinforcing expansion; if it does not, policymakers will need to lean on structural reforms and targeted demand support to keep the cycle intact. Economists now feel that despite the 60-80 basis point impact due to the US tariffs, India’s GDP growth in FY26 will be at 6.5% levels. A lot will, however, depend on how the impact of the US tariffs plays out. After all, they affect many labour-intensive sectors such as textiles, gems and Jewellery, leather and so on.
