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India’s economy keeps humming despite Iran war

By Sohail Khan 17 August 2026, 5:30 am

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Business News›News›Economy›Indicators›India Q1 GDP growth seen at 7.3% as consumption, capex cushion Iran war shock: ET poll

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India Q1 GDP growth seen at 7.3% as consumption, capex cushion Iran war shock: ET poll

Synopsis

India's economy likely grew over seven percent in the first quarter of fiscal year twenty twenty seven. Resilient consumption and exports supported this robust economic expansion during the period. Government capital expenditure also played a significant role in driving overall economic activity. High frequency indicators suggest healthy domestic volume growth across sectors. Economists anticipate a slight moderation in growth during subsequent quarters.

India’s economic growth likely held above 7% in the first quarter of FY27, as resilient consumption and exports coupled with robust government capex defied supply chain disruptions and inflated commodity prices triggered by the Iran war.

Gross domestic product likely grew by a median 7.3%, showed an ET poll of 10 economists, with estimates ranging from 6.7% to 8%. RBI pegged June quarter growth at 7%. The economy grew 7.8% in the March quarter and 6.8% in Q1FY26. The National Statistical Office (NSO) will release official GDP data for Q1 on August 31.

“High frequency indicators across the industrial and services sectors have revealed a healthy picture of domestic volume growth in Q1FY27,” said ICRA’s chief economist Aditi Nayar.

India growth projection for April-June

Industrial production grew by an average of 5.7% in Q1FY27, up from 3.8% in the previous quarter. Consumption also remained strong, with domestic passenger vehicle sales growing 25.6% on average in Q1FY27, nearly doubling from a 13.1% rise in Q4FY26. Electricity demand growth improved to 8.4% from 1.9% over the same period.

Investment activity strengthened, with the Centre’s capital expenditure rising 18.6% in Q1FY27, compared with 9.1% in the previous quarter.

“Manufacturing activity remained buoyant, supported by strong volume growth,” said Sakshi Gupta, principal economist at HDFC Bank. “The squeeze on profit margins has been offset by the increase in volume sales.”

Nayar however said elevated input costs likely weighed on profitability across some sectors, and consequently value-added growth in the quarter, compressing GDP expansion.

Services activity remained buoyant, with the services purchasing managers’ index rising to 58.6 on average in Q1FY27 from 58 in the previous quarter. Services exports also accelerated to 13.1% from 8.9% over the same period.

Rajani Sinha, chief economist at CareEdge Ratings, said sectors such as agriculture, public administration and trade, hotels, transport, communication and services related to broadcasting services could be a drag on the overall growth momentum in Q1, due to the likely impact of elevated energy prices and subdued travel activity amid the escalated geopolitical tensions.

She said agricultural growth is likely to be impacted by the delayed onset of the monsoon and softer agricultural activity during the quarter.

Also Read: India could reach $20 trillion by 2036 with 14.2% rupee growth: Equirus

Economists expect the strong performance in the fiscal first quarter to be followed by some moderation in the second and third quarters of FY27, as the fallout of the Iran war feeds through, and high raw material and energy prices dampen activity.

Outlook

Economists are likely to revise their FY27 growth projections upwards following the stronger-than-expected momentum in the first quarter. The ET poll puts the median FY27 GDP growth estimate at around 6.8%, with forecasts ranging from 6.5% to 7.5%.

CareEdge Ratings has already revised its FY27 GDP growth forecast to 7% from 6.7%. DBS Bank sees an upside bias to its estimate, while Kotak Mahindra Bank is also likely to revise its forecast to 7%.

However, weather-related and geopolitical uncertainties remain key risks to the outlook.

Also Read: Malhotra & Co lift FY27 GDP forecast to 6.7% from 6.6% on growth resilience

“The spatial and temporal distribution of rainfall during the remainder of the season will be critical,” said Sinha. “On the external front, continued volatility in global energy prices remains a key risk factor.”

The World Bank and International Monetary Fund (IMF) pegged India’s FY27 growth at 6.6% and 6.4%, respectively. As per their estimates, India remains among the world’s fastest-growing major economies.

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