India's Economy Surprises with 7.8% Growth
India’s economy has taken everyone by surprise with a remarkable growth of 7.8% in the April-June quarter of FY26, rising from 7.4% in the previous quarter. This robust performance ensures that India continues to be the fastest-growing major economy in the world, outpacing China, which recorded a GDP growth of 5.2%, and the United States at 3.3% during the same period.
Despite economists forecasting a slowdown to 6.7% due to the impact of 50% US tariffs on exports, India’s growth rate has exceeded expectations, marking the highest growth since January-March 2024 when it was 8.4%. The gross value added (GVA) also saw an impressive rise of 7.6% in this quarter, compared to 6.8% in the previous quarter.
The Reserve Bank of India had projected a GDP growth rate of 6.5% for the full fiscal year, with expectations of slight variations in subsequent quarters. However, the strong growth figures in the first quarter have been attributed to several factors, including government spending and increased exports to the US.
Experts, however, caution that these growth numbers may not be sustainable. Madhavi Arora, lead economist at Emkay Global, mentioned that the current economic boost is temporary, and the effects of the tariffs will begin to manifest in the coming months. This could lead to a domino effect impacting employment, wages, and private consumption, potentially dampening the outlook for private investment.
Additionally, India’s fiscal deficit has increased significantly, reaching 29.9% of the full-year target by the end of July. This gap between government expenditure and revenue stood at ₹4,68,416 crore during the April-July period, raising concerns about fiscal health. The government estimates a fiscal deficit of 4.4% of GDP for FY26.
While immediate growth figures are encouraging, the challenges ahead, such as rising tariffs and fiscal deficits, need to be addressed. However, some analysts believe that softer inflation and potential GST cuts could provide a buffer, helping to sustain consumption levels as India navigates towards 2026.
