India's GDP jumps 7.8%, prompting analysts to lift growth forecasts
What's the story
India's economy grew by a surprising 7.8% in the June quarter, exceeding expectations and prompting CLSA and Citi to revise their GDP growth forecasts for FY26. Nikhil Gupta of CLSA has raised his prediction from 6.1% to 6.3%, while Samiran Chakraborty of Citi has increased his estimate from 6.7% to 7.1%. Both firms noted that investments and fiscal spending were major contributors to this unexpected growth in India's first-quarter real GDP expansion rate.
Analyst insights
Higher growth attributed to investments and fiscal spending
Gupta noted that the real GDP growth for the first quarter was much higher than expected, beating both last quarter's 7.4% and last year's 6.5%. He said, "The consensus was at 6.6% and CLSA's estimate was at 6.1%." Gupta attributed this higher growth to investments led by a low deflator and frontloaded fiscal spending, with private consumption also witnessing decent growth despite net exports dragging down GDP growth.
Growth drivers
GDP deflator's role in Q1 surprise
Chakraborty explained that the first quarter real GDP was a surprise, largely due to a lower-than-expected GDP deflator of 0.9%. This narrowed the gap between real and nominal growth. He also noted that unseasonal rains in May and June affected some industrial activity, but manufacturing remained resilient while services recorded a decade-high growth at 9.3%.
Future uncertainties
Uncertainties surrounding India's GDP
Chakraborty also highlighted uncertainties surrounding India's GDP, including the potential impact of a GST cut and US tariffs. He said weaker growth in the second half of FY26 factors in unfavorable base effects and some tariff impact. Despite these uncertainties, the revised forecasts suggest a positive outlook for India's economic performance in FY26.