India’s GDP surged 7.8% in April–June FY26, a five-quarter high. Manufacturing and construction drove growth, services stayed strong, and the economy defied U.S. tariff headwinds—signaling resilience and renewed industrial momentum.
By Manoranjana Gupta
India’s economy delivers a five-quarter high, powered by manufacturing and services, even as U.S. tariffs loom.
A Quarter of Surprises
India’s economy has once again surprised skeptics. Data from the Statistics Ministry shows GDP growth at 7.8% in the April–June quarter (Q1 FY26), the highest in five quarters and above all market forecasts. This follows the 7.4% expansion in January–March and the 6.5% growth in April–June 2024, underscoring India’s resilience amid global turbulence.
Sectoral Drivers: Manufacturing & Construction on Fire
The standout story of this quarter lies in the secondary sectors.
– Manufacturing grew at 7.7%—reflecting stronger domestic demand, steady export performance despite tariffs, and continued policy support for PLI-linked industries.
– Construction surged 7.6%, aided by housing demand, infrastructure spending, and robust credit flow.
Together, these sectors anchored growth above 7.5%, showing that India’s economy is no longer only services-led but is regaining industrial momentum.
Services Sector: The Old Engine Still Roaring
The services sector, India’s traditional growth powerhouse, remained buoyant. Banking, financial services, IT-enabled exports, and consumer-driven sub-segments provided steady traction. This dual-engine performance—services and industry—has given India policymakers breathing space in a challenging global climate.
Tariffs and Policy Challenges
The growth numbers come despite a looming drag: the 50% tariff imposed by the U.S. on Indian goods. Policymakers have scrambled to diversify export markets, bolster domestic substitution, and support exporters through fiscal levers. While the tariff shock has not yet fully transmitted, the robust Q1 numbers provide a cushion against upcoming external headwinds.
Implications for Policymakers
For the Modi government and the RBI, the stronger-than-expected growth allows room for calibrated policy:
– RBI may hold a cautious stance on rates, prioritizing inflation control without stifling momentum.
– Government spending on infrastructure will likely remain aggressive, using growth as legitimacy for higher capital outlays.
– Export diversification and tariff diplomacy will be critical in the coming quarters to safeguard momentum.
The Big Picture
India has managed two consecutive quarters of beating expectations—a rare feat in today’s fragile global economy. More importantly, the composition of growth has broadened: not just consumption and services, but also manufacturing and construction. For a nation aspiring to become a $5 trillion economy, the April–June quarter of FY26 could mark a symbolic turning point.
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