Investment demand drives Q1FY27 growth as consumption loses momentum | Economy & Policy News

Investment demand gathered pace in the April-June quarter of the financial year 2026-27 (FY27) as gross fixed capital formation (GFCF) accelerated to 11.9 per cent from 10.5 per cent in the fourth quarter of 2025-26 (FY26), according to data released by the National Statistics Office (NSO) on Monday.

The quarterly estimates of gross domestic product (GDP) for FY27 showed that the share of GFCF, which represents investment demand in the economy, in nominal GDP rose by 290 basis points to 34.3 per cent from 31.4 per cent in Q1FY26. Growth in private final consumption expenditure (PFCE) slowed to 7.1 per cent in Q1FY27, compared with 7.5 per cent in Q4FY26 in real terms.

The share of PFCE, which represents consumption demand in the economy, in nominal GDP fell by 20 basis points to 55.6 per cent from 55.8 per cent in the same quarter a year ago. Madan Sabnavis, chief economist at Bank of Baroda, said overall Q1 growth was spearheaded by capital formation, with growth of 20.4 per cent in nominal terms.

“This is a major takeaway as this involves both private and government expenditure with the former being driven by data centres and power besides metals,” Sabnavis said. “The government’s continued thrust on capex-led growth has translated into sustained double-digit investment growth for two consecutive quarters,” Rajani Sinha, chief economist, CareEdge Ratings, said.

Ranjeet Mehta, CEO & SG, PHDCCI, also said that both high private and government investments were required additions to much-needed physical capacity that was necessary to accelerate GDP in the coming quarters. “The double digit growth in GFCF at 11.9 per cent and high growth in PFCE at 7.1 per cent and at constant prices during Q1 FY 2026-27, happened despite the global uncertainties,” Mehta said.

Government spending, represented by government final consumption expenditure (GFCE), fell sharply to 4.3 per cent in Q1FY27 from 7.7 per cent in the preceding quarter. The share of GFCE in nominal GDP fell by 10 basis points to 11.1 per cent in Q1FY27 from 11.2 per cent a year ago. Sabnavis added that higher inflation in recent months had slowed overall consumption numbers, as expected. “And on the government side, due to constrained resources, the majority of spending was seen on the capital expenditure front and not on revenue, which dragged down the government spending numbers,” he noted.