India's First-Quarter GDP surprises, yet five striking inconsistencies that demand attention persist

India's Q1 GDP Growth Surpasses Estimates, but Challenges Remain

India's economy grew by 7.8% in Q1, exceeding most estimates, according to data released by the government. However, the growth remains below potential, as indicated by subdued core-core inflation.

The surge in GDP growth was largely driven by private consumption, which played a significant role in pushing the growth towards 8%. On the other hand, urban and rural consumption trends are diverging, with rural consumption likely picking up and urban consumption indicators being weak. The rise in real rural wage growth supports rural demand, while urban wage growth continues to slow in real terms. Rural demand, which is showing signs of revival with a pickup in wage growth, will get further support from robust Kharif and Rabi harvests.

The manufacturing sector also showed signs of recovery, with manufacturing growth higher at 7.7% in Q1. This reflects a rise in profit growth of listed companies as input costs moderated. Exports to the US were front-loaded in H1FY26, with a 21.8% YoY increase (Apr-July).

However, the sales growth of manufacturing sector companies has continued to slowdown in Q1FY26 at 5.3% (nominal growth). The sectors at risk are labor-intensive, including SME sector companies, which account for 46% of India's overall merchandise exports.

The growth in the economy has received support from transient factors such as the peak supportive base effect, a sharp slowdown in the GDP deflator, the front-loading of exports to the US, and the front-loading of government capex. However, the GDP deflator growth is expected to pick up in H2FY26 with an expected rise in CPI and WPI inflation.

Discrepancies contributed 1.8 percentage points positively to overall headline GDP growth in Q1. This large contribution of discrepancies has persisted post Covid-19, underscoring the limited availability of data on the expenditure side. The low current account deficit for the last two years is another indicator of a negative output gap.

IDFC First Bank is maintaining the call for one more 25 bps rate cut by RBI. The bank predicts a 0.4% drag on FY26 growth if a 50% bilateral tariff persists till March 2026. The proposed GST cut, if implemented by October 2025, is estimated to push up growth by 0.3% in FY26.

According to Gaura Sengupta of IDFC FIRST Bank, the Q1 GDP numbers are a tale of multiple contradictions. The search results do not contain information about specific individuals analyzing or criticizing India's economic development and GDP figures for Q1.

In conclusion, while India's Q1 GDP growth is a positive sign, the economy still faces challenges, particularly in the urban and labor-intensive sectors. The government and private sector will need to continue to work towards supporting growth and addressing these challenges to ensure that the economy remains on a path of sustainable growth.

India's First-Quarter GDP surprises, yet five striking inconsistencies that demand attention persist