Despite the ongoing debate around the new GDP series, real GDP growth remained robust at 7.8% in the first quarter, highlighting the economy’s ability to absorb external shocks. Importantly, the government has cushioned much of the impact of the West Asia war-led energy shock through excise duty reductions and higher LPG and fertiliser subsidies, limiting the transmission of higher energy costs to households. As a result, domestic demand has remained relatively insulated, while corporate India has continued to post healthy revenue growth. That said, rising raw material and input costs have weighed on profit margins, tempering earnings growth despite strong topline performance. India’s oil intensity (measured by oil consumption in grams per unit of real GDP) has been on a decline—falling from 1.34 in the early 2000s, to 1 in FY16, to 0.74 in FY26. This has also strengthened the economy’s ability to withstand energy price shocks.
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Investment activity and exports emerged as the primary drivers of growth in the first quarter, although momentum across sectors has remained uneven. High-frequency indicators broadly validate these trends.
Manufacturing has been a key bright spot, supported by strong industrial credit growth, robust electricity demand and sustained expansion in capital goods production, signalling healthy investment momentum. Continued strength in home loan growth, alongside healthy steel and cement consumption, points to ongoing infrastructure focus and real estate activity. Nevertheless, the moderation in fuel consumption and railway freight traffic suggests that pockets of industrial demand have softened.
The services sector, which remains a critical pillar of growth, presents a more mixed picture. While credit growth to the sector remains strong, business sentiment indicators have moderated in recent months. Travel-related activity has also seen some softness, partly reflecting higher airfares amid elevated aviation fuel costs.
Meanwhile, domestic consumption continues to provide an important anchor for growth. Private consumption remained healthy in Q1, reflected in strong sales growth across passenger vehicles, twowheelers and tractors. Labour market conditions have also improved, particularly in rural areas, lending further support to household spending.Also read | GDP more than aggregation of high-frequency indicators: Pronab Sen, India’s first chief statistician
Looking ahead, strong domestic demand, healthy credit growth, rising investment activity and a resilient corporate sector should continue to support growth in the near term. However, risks to the outlook have increased. Geopolitical uncertainties have persisted, keeping energy and commodity prices vulnerable to renewed volatility at a time when fiscal space to absorb additional shocks is becoming more constrained. Moreover, both global and domestic financial conditions have begun to tighten as monetary policy enters a hiking phase.
The fading benefits of earlier GSTrelated tax reductions, gradual passthrough of higher input costs and less favourable base effects are also likely to moderate growth momentum over the coming quarters.