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Q1 FY26 GDP Performance

Economic Growth Surprised on the Upside

* Real GDP growth accelerated to a five-quarter high of 7.8% (y-o-y) in Q1 FY26.

* Growth was supported by a sharp pickup in manufacturing and services sector growth.

* Additionally, a low GDP deflator of 1% also inflated India’s real GDP growth in Q1.

* We project full-year GDP growth to be at 6.5% assuming the ongoing trade negotiations result in the removal of an additional 25% tariff on India.

* However, growth is expected to falter below 6% if the current 50% US tariff on India persists.

Q1 FY26 GDP Performance

Breakdown of Economic Momentum

* Consumption picked up sharply to 7.1% in Q1 FY26, aided by rationalisation of income tax slabs, easing food inflation, favourable monsoon, and RBI rate cuts.

* Investment growth moderated but remained healthy at 7.8% in Q1 FY26.

* Among sectors, growth was supported by an uptick in the manufacturing and services sectors. However, agricultural growth witnessed a moderation during the quarter.

Domestic Inflationary Scenario

CPI Inflation Continues on a Downward Trajectory

* Sustained easing in CPI inflation was primarily driven by a moderation in food inflation and a favourable base effect.

* Core inflation excluding precious metals stood at 3.5%.

* GST rationalisation to lower CPI inflation by 70–90 bps annually under the current CPI basket.

* CPI inflation is expected to rise in Q1 of the next fiscal year on account of a low base. However, lower GST rates will cushion the impact to some extent.

* Downward trajectory of CPI inflation and favourable prospects for monsoon and agriculture remain positives for the overall demand outlook

Southwest Monsoon Update

IMD Predicts Above Normal Rainfall During August-September

* The South-West monsoon, after a brief slowdown in early August, remained above the Long Period Average (LPA) through the month.

* As of 04 September, the cumulative rainfall at the all-India level was 9% above the LPA.

* All regions received above-normal rainfall, except East and North-East India.

* IMD expects monsoon to progress well, with rainfall activity likely to remain above normal during the second half of the current monsoon season (August to September).

Kharif Sowing Update

Sowing Progresses Well

* Kharif sowing has progressed well this season, aided by favourable monsoon, with total sown area up by 3.1% (y-o-y) as of 29 August 2025.

* Foodgrains sowing has seen the sharpest expansion, rising 5.6%, driven by cereals at 6.5%.

* The weak performance in sowing of oilseeds remains concerning, given the elevated inflation seen in this category.

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