The Economy Observer : Economic activity holds steady in Apr’26 by Motilal Oswal Financial Services Ltd
* Preliminary estimates indicate that India’s economic activity remained resilient in Apr’26, with our EAI-GVA growth holding steady at 7.8% YoY, supported by continued strength in services and an improvement in industrial activity. Manufacturing, construction and electricity generation gained momentum, offsetting the continued contraction in mining activity. As a result, non-farm EAI-GVA accelerated to 8.8% YoY in Apr’26 from 8.3% in Mar’26, indicating improving momentum in the broader economy.
* Our EAI-GDP growth accelerated sharply to 10.2% YoY in Apr’26, the strongest reading in five months, driven by doubledigit consumption growth, a recovery in investment activity and a positive contribution from net exports. Consumption remained supported by strong rural wage growth, robust credit expansion and higher government spending, while investment activity benefited from a rebound in government capex and stronger capital goods production.
* High-frequency indicators for May’26 suggest that growth momentum remains mixed. Business sentiment improved further, with both manufacturing and services PMIs strengthening and passenger vehicle sales remaining robust. However, a moderation in commercial vehicle sales, registered vehicle growth and reservoir levels points to some softening in demand and agricultural-related indicators.
* Our EAI-GVA index continues to track the official GDP series closely. In 4QFY26, EAI-GVA averaged 8.4% YoY, while the official real GDP growth released by MOSPI came in at 7.8% YoY, highlighting the strong correlation between our activity tracker and the official growth estimates.
* Looking ahead, EAI-GVA remained robust at 7.8% YoY in Apr'26, while high-frequency indicators for May'26 present a mixed picture. Based on the Apr-May activity data, we expect economic activity to moderate from the strong pace seen in 4QFY26.. We, therefore, estimate 1QFY27 real GDP growth at around 6.5% YoY vs. the RBI's forecast of 6.6%, supported by continued strength in services. However, elevated geopolitical tensions, global trade uncertainty and weather-related challenges remain key downside risks to the outlook.
* Agricultural activity remains stable in Apr’26
The agriculture sector remained broadly stable in Apr’26, with growth moderating to 3.4% YoY from 3.5% in Mar’26, indicating continued resilience in rural activity. High-frequency indicators remained supportive. Domestic tractor sales strengthened to 27.1% YoY in Apr’26 from 24.0% in Mar’26. Reservoir levels improved further, with growth accelerating to 16.1% YoY in Apr’26 from 9.8% in Mar’26, supporting the outlook for agricultural production. Real rural wage growth remained broadly stable at 18.3% YoY. Fertilizer output continued to contract, though the pace of decline eased significantly to -8.6% YoY in Apr’26 from -24.6% in Mar’26. While rural demand remains healthy, risks stem from persistent weakness in fertilizer production and weather-related uncertainties (below 10% rainfall this year predicted by IMD) (Exhibit 15)
* Industrial activity strengthened in Apr’26, with growth accelerating to 7.4% YoY from 6.5% in Mar’26, reflecting a partial recovery across manufacturing, construction and electricity generation. Manufacturing growth accelerated to 9.2% YoY in Apr’26 from 8.4% in Mar’26, supported by stronger industrial production, with IIP manufacturing growth improving to 6.2% YoY in Apr’26 from 3.9% in Mar’26. Construction activity also picked up, with growth increasing to 7.1% YoY from 5.8% in Mar’26, aided by a rebound in cement output and healthy steel production. Electricity generation growth accelerated to 4.1% YoY in Apr’26 from 0.8% in Mar’26. However, mining remained a drag on overall industrial performance, with mining sector growth contracting by 5.6% YoY compared with a 5.9% decline in Mar’26 amid continued weakness in coal, crude oil and natural gas production. Fuel consumption also contracted by 1.8% YoY after growing 7.0% in Mar’26. Looking ahead, persistent weakness in mining activity, lower fuel consumption and softer credit growth could pose risks to the industrial recovery. Moreover, ongoing geopolitical tensions and high commodity prices could weigh on industrial activity through higher input costs, weaker profitability and disruptions to global trade flows (Exhibit 15)
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