Weekly economy wrap: GDP beats estimates, but inflation risks remain | Economy & Policy News

India’s economy delivered a stronger-than-expected start to financial year 2026-27, with gross domestic product (GDP) expanding 7.8 per cent in the April-June quarter despite disruptions caused by the West Asia crisis. The headline growth number was supported by investment and services, while government capital expenditure also remained robust.

 

But the week’s economic picture was more mixed beneath the surface. The release of GDP data sparked a debate over revisions to the new national accounts series, manufacturing activity weakened in August, and concerns around food inflation intensified as the monsoon remained deficient. Higher gas, aviation fuel and commercial LPG prices added another layer of cost pressure.

  

GDP growth beats expectations

 

India’s GDP grew 7.8 per cent in Q1FY27, compared with 6.9 per cent in the year-ago quarter. The performance was stronger than the Reserve Bank of India’s projection of 7 per cent.

 

Investment grew 11.9 per cent, private consumption expanded 7.1 per cent, and government consumption rose 4.3 per cent. Manufacturing grew 9.2 per cent, while services expanded 10 per cent for a third consecutive quarter. Agriculture and allied activities grew 3.6 per cent.

 

GDP revisions trigger methodology debate

 

However, questions emerged over the 2022-23 base-year GDP series. The government sought to explain why GDP at current prices for Q1FY26, earlier estimated at ₹86.05 trillion under the old 2011-12 series, was now estimated at around ₹80 trillion. It said the revision reflected updated datasets and methodology rather than an attempt to mechanically raise the current year’s growth rate.

 

A Business Standard analysis showed that earlier base-year revisions had changed nominal GDP estimates. When the base year shifted from 1999-00 to 2004-05, nominal GDP for Q1FY08 increased by nearly ₹64,000 crore, or about 6 per cent.

 

Former chief statistician Pronab Sen, however, questioned whether sufficiently detailed input-price data were available for double deflation. While supporting the methodology in principle, he called for greater transparency around the data and deflators being used.

 

Government capex remains a growth support

 

The investment strength visible in GDP data was reinforced by higher government capital expenditure. The Centre spent ₹4.51 trillion on capex during April-July, up 30 per cent from a year earlier. This amounted to 37 per cent of the full-year FY27 target of ₹12.22 trillion, compared with 31 per cent achieved during the same period last year.

 

The fiscal deficit stood at ₹4.55 trillion, or 27 per cent of the Budget Estimate.

 

Current account deficit widens

 

The external sector presented a more mixed picture. India’s current account deficit widened to $4.2 billion, or 0.5 per cent of GDP, in Q1FY27 from $3.4 billion, or 0.4 per cent, a year earlier.

 

The merchandise trade deficit widened to $86.1 billion from $68.9 billion. Services and remittances provided a cushion, with net services receipts rising to $51.6 billion and personal transfer receipts increasing to $42.9 billion.

 

Manufacturing weakens, services improve

 

High-frequency data suggested that the strong Q1 manufacturing performance may be losing momentum.

 

The Manufacturing Purchasing Managers’ Index (PMI) fell to 52.8 in August from 53.5 in July, marking the weakest expansion in five years. Services provided some offset, with PMI rising rose to 54.1 from 53.3, while employment growth reached a 15-month high.

 

Monsoon raises food inflation concerns

 

Weather emerged as one of the key risks to the outlook. The finance ministry said economic activity remained steady but cautioned that El Nino, food prices and global commodity movements could influence inflation.

 

Consumer price inflation had risen to a 19-month high of 4.45 per cent in July, with food inflation at 5.52 per cent.

 

Those concerns were reinforced by weak rainfall. India received 14 per cent below-normal rainfall during the first three months of the southwest monsoon, while September rainfall was projected to remain below normal. The deficit raised risks to crops including rice, sugar cane and soybeans.

 

Fuel prices add to cost pressures

 

Energy costs also moved higher. Mahanagar Gas raised CNG prices by ₹2 per kg and domestic PNG by ₹1 per standard cubic metre from September 1. Aviation turbine fuel prices rose 5.46 per cent, while commercial LPG prices increased by ₹9.50 per 19-kg cylinder. Domestic LPG prices were unchanged.