India Continues as a Bright Spot in the Global Economy
– Arun Kumar Singh
The Ministry of Statistics and Programme Implementation (MoSPI) has recently released GDP growth figures for the first quarter of FY27 (April–June 2026). India’s growth was 7.8% during this period. Though lower than the previous quarter’s figure (the last quarter of FY26 January to March 2025) of 8.6%, it has generated a lot of controversy, with some economists and former bureaucrats jumping into the fray.
| Sector | Q1 FY27 | Q1 FY26 |
| Primary | 2.9% | 5.3% |
| Agriculture and Livestock | 3.6% | 4.4% |
| Mining, etc. | -2.4% | 12.4% |
| Secondary (Industry) | 8.6% | 6.1% |
| Manufacturing | 9.2% | 8.3% |
| Electricity and Gas | 8.9% | -1.8% |
| Construction | 7.7% | 5.2% |
| Tertiary (Services) | 10.0% | 8.0% |
| Financial and Real Estate | 12.1% | 8.8% |
| Public Administration, etc. | 7.5% | 4.6% |
Sector-wise real Gross Value Added growth rates (comparative) for the first quarter of this year and last year (growth rate in %).
Exports expanded by 12% at the constant price (11.4% at current price). Last year, they grew by 6%. The high export growth was on account of electronic goods (growth rate 18.93%) and engineering goods (20.74%). Of course, the highest growth was recorded by the traditional item gems and jewellery (34.64%).
Former Finance Secretary Subhash Garg has argued that the growth rate would have been 2.6% at current prices if the nominal GDP of the corresponding period of last year (April-June 2025) had not been reduced to Rs 80 lakh crore from Rs 86 lakh crore. According to him, this made this quarter’s figure “look better.” The government, of course, has countered this by explaining that this was done because of switching to a new base year of 2022-23 from the earlier 2011-12, a common practice resorted to by all nations. This decision was made in February 2026 and, accordingly, the new series of GDP was worked out. This revision yielded the nominal GDP for April-June 2025 as Rs 80.44 lakh crore. Thus, the Ministry clarified that it was incorrect to say that last year’s nominal GDP figures were deliberately lowered to “mechanically increase the current year’s growth.”
The Ministry similarly responded to the criticism about adopting a 2.5% GDP deflator rather than the higher CPI inflation of 3.9% or WPI inflation of 9%, arguing that “the three measures have different coverage and weight.” The Ministry stated: “The GDP deflator covers the entire economy, including investment, government spending, exports and services.” While the earlier series relied on about 180 deflators, the new one uses over 300, making it more sophisticated for measuring the impact of inflation on different sectors. Soumya Kanti Ghosh, Group Chief Economic Adviser of SBI, commented on this controversy that revisions are part and parcel of a GDP number and that it would undergo several changes in the next 30 months. [The Economic Times, New Delhi/Gurgaon, 3 September 2026]
This growth rate, when viewed against the backdrop of the US–Iran war and the El Niño effect, looks very impressive. Due to geopolitical tensions, the price of crude is elevated. Also, the export growth rate of 12% at constant price compared to 6% at constant price last year is commendable, as exports to the US suffered due to high tariffs imposed by President Trump. A levy of 10% on Indian imports from 1 July will affect exports in the next quarter. When we analyse the performance of goods exports, we notice even higher growth of 15.9%, with diverse industries ranging from gems and jewellery, chemicals, electronics and auto components contributing to growth.
Structural Transformation of Manufacturing
Another commendable feature of this GDP growth is the high growth of gross fixed capital formation, which rose by 11.9% as compared to 5.8% in the first quarter last year. While the government continues the momentum of building infrastructure, “the private capex has picked up at last.” Compared to last year, the imports of capital goods, machinery and equipment have grown by 51.5%. Last year, it grew by 16.5%. This is also reflected in the high growth of IGST (29%) during the first quarter of the current financial year.
This is driven by imports of heavy machinery, equipment and components, signaling a substantial corporate expenditure cycle (capex) and a structural shift towards automation and global competition. This shows that sectors such as automobiles, electronics and advanced manufacturing are modernizing at a fast pace to become globally competitive. Indian industries are fast becoming part of the global supply chain, availing themselves of PLI scheme benefits to draw investment and become global players. A large share of machinery and components is dedicated to setting up assembly lines for electric vehicles (EVs).
Overall, the latest growth figures reflect deep structural changes in industry. Deep manufacturing, high growth in automobiles and electric vehicles, and transformation in electronics and semiconductors indicate Indian industries’ ability to get connected with global supply chains.
Swaminathan Anklesaria Aiyar writes in his Sunday column in The Times of India (6 September 2026), titled “No, GDP Data Isn’t Bad but Hurdles to Good Jobs Remain,” countering the views of critics, including Raghuram Rajan, former RBI Governor. Rajan argues that the high growth rate cannot be trusted, as it has not been reflected in high private investment, high inflow of FDI and the generation of millions of good jobs. Aiyar refutes this by citing high investment by private companies, as reflected in the 11.9% increase in gross fixed capital formation in the first quarter of the current financial year, as compared to only 5.8% in the corresponding period in FY26.
GFCF as a share of GDP increased from 31.4% a year earlier to 34.3% in Q1 this year. For many years, the rate seemed to be stuck at 30%. Rapid industrial growth is also reflected in the 15% rise in the capital goods sector in the latest quarter. He also mentions the CMIE figure for announcements of fresh capital investment in Q1 FY27. This saw an unprecedented jump of 97%, amounting to Rs 15.4 lakh crore, as compared to last year’s announcements. About FDI, he says that gross FDI rose to $94.53 billion in 2025-26 compared to a year earlier. However, on account of repatriation of capital by foreign companies, as well as investment abroad by Indian companies, net FDI was only $7.65 billion in 2025-26 and only $0.96 billion a year before.
Expressing concern about the fragility of employment, Aiyar mentions that, while the unemployment rate was as high as 6% in 2017-18 and fell to 3.2% in 2023-24, the labour market was very fragile. Companies prefer to outsource their workers to reduce their costs. If they employ them permanently, they will be liable to pay PF, ESI and other benefits, raising their costs by 50%.
There are other weaknesses in our economy, such as the skewed distribution of bank credit. Though it grew by 15% in Q1 of FY27, most loans were given to big borrowers. For the MSME sector, the growth was merely 4%.
Private investment has gone to renewable energy, electronics, precision engineering, data centres, etc. In the context of higher private investment, an industry expert rightly said: “The engine has started, but it needs steady fuel to reach full speed.”
Thus, the growth figure of 7.8% is trustworthy, though there are some problems relating to the employment scenario and the accessibility of bank credit for small enterprises.
About the author:
Arun Kumar Singh studied Physics in Patna Science College and after completing BSc (Hons.) joined Indian Audit and Account Service in 1978. He held several positions in the department before retiring as Deputy CAG in 2015. Post-retirement he worked as member in a judicial enquiry commission for one and half years. He started ‘Sahyatri’, a development focused magazine in Hindi in which he wrote frequently. The Social Sight, digital magazine was started on the initiative of his along with some friends. His interests include social work, human rights as well as cultural issues.