FXT Financial Focus (Asia-Pacific 09/01)Manufacturing and Investment Drive India’s Growth

India‘s economy started FY2026–27 stronger than expected. Real GDP grew 7.8% year-on-year in April–June, above the Reserve Bank of India’s 7.0% forecast and 6.9% a year earlier. At constant 2022–23 prices, GDP rose to INR 81.36 trillion, while nominal GDP increased 10.3% to INR 88.27 trillion. Although growth slowed from the revised 8.6% in January–March, the economy remained resilient despite external pressures.

Manufacturing and services were the main growth drivers. Services expanded 10.0%, with financial, real estate, IT and professional services up 12.1%. Manufacturing grew 9.2%, lifting the secondary sector by 8.6%. Real gross value added rose 8.2%, also outpacing GDP and pointing to solid production activity.

The recovery remained uneven. The primary sector grew just 2.9%, agriculture and related industries rose 3.6%, while mining contracted 2.4%. In contrast, utilities including electricity grew 8.9%, while trade, hotels, transport and communications expanded 8.5%. Growth remains concentrated in manufacturing, services and urban activity, with traditional resource sectors lagging.

Investment showed the clearest improvement on the demand side. Real fixed capital formation jumped 11.9%, up sharply from 5.8% a year earlier, while nominal capital formation rose from 31.4% to 34.3% of output. Beyond government infrastructure spending, private capital is increasingly flowing into data centers, power and metals, signaling stronger corporate appetite for capacity expansion.

Foreign trade also accelerated. Exports of goods and services rose 25.8%, led by transport and machinery, while imports increased 30.5%, with machinery imports rising by more than 50%. Although imports outpaced exports, the surge in capital-goods imports also points to stronger domestic investment and faster capacity expansion.

The Reserve Bank of India expects full-year growth of 6.7% and sees some moderation over the next two quarters, while Nomura has raised its forecast to around 7%. Meanwhile, industrial production growth slowed from 8.8% in June to 6.7% in July. Weak mining activity and elevated energy and transport costs could add pressure in the second half of the fiscal year.

From FXT‘s perspective, the key positive from India’s stronger-than-expected first-quarter GDP is the simultaneous expansion in manufacturing, services and investment, suggesting a solid growth foundation. If private investment continues to strengthen and translates into new manufacturing capacity, full-year growth could exceed official forecasts. However, softer industrial production, mining weakness and higher external energy costs may slow the pace of growth in the coming quarters.