India’s GDP growth remained strong at 7.8% in Q4 FY26 compared to an upwardly revised 8.0% in Q3 FY26 (7.8% earlier), exceeding market expectations which had broadly anticipated growth around ~7.2% (Reuters poll median). In comparison, GVA growth stood a tad above GDP growth at 7.9%. 

Key internal highlights of Q4 FY26 GDP data

On the expenditure side:

• Investment emerged as the principal driver of the quarterly GDP print, expanding by 10.8% YoY - the highest on record under the revised GDP series with 2022-23 as the base year.
• The acceleration has been led by capex at both central and state level combined, as also improvement in project completions under both government and private ownership, as per CMIE data in Q4. 
• Private consumption growth remained anchored at 7.1% YoY, benefiting from the tailwinds of lingering GST rate rationalization from Q3 as also consumers remained insulated from the fallout of the energy crisis amid limited pass-through. 
• Healthy farm cash flows following a strong rabi harvest together with state-led income support continued to underpin rural demand as reflected in double-digit expansion in domestic two-wheeler sales, tractor sales and agricultural credit during Q4 FY26. 
• In parallel, urban demand was aided by the residual impulse from domestic-policy led tailwinds and a benign inflation trajectory. This was validated by double-digit expansion in passenger vehicle sales, alongside healthy e-way bill collections during Q4 FY26. 
• In a notable surprise, net exports contributed positively to GDP growth in Q4 FY26 - marking a record high in magnitude (+1.0% vs -1.1% during Q3 FY26) 
• Exports remained resilient, aided primarily by services exports (+8.9% YoY in Q4) notwithstanding a contraction in merchandise exports (-2.9% in Q4) following 6 months of elevated US tariffs (until 3^rd week of Feb-26). 

On the sectoral side:

• Strength in GVA growth was largely attributable to the services sector which sustained higher than 9.0% growth for the 3^rd consecutive quarter, driven by double-digit gains across Trade, Hotels, Transport, Communication & Services as well as Financial, Real Estate & Professional Services.
• Primary sector activity witnessed broad-based improvement across both agriculture and mining. 
• However, Manufacturing GVA decelerated sharply to 7.3% from 12.8% in Q3 FY26, ending a five-quarter streak of double-digit growth. 
• The moderation was corroborated by a slowdown in IIP-Manufacturing growth to 4.9% YoY from 5.5% in Q3 FY26.
• In addition, pick-up in WPI inflation is likely to have weighed on manufacturing GVA as well.
• Meanwhile, improvement in non-manufacturing industrial sectors of electricity and construction vis-à-vis Q3 FY26, offered some support. 

Key internal highlights of FY26 Annual GDP data

For FY26, GVA and GDP growth were estimated at 7.9% and 7.7%, respectively, marking an improvement of 60 bps over FY25.

• Investment remained the principal growth driver, with growth in gross fixed capital formation accelerating to 8.2% from 6.4% in FY25.
• Private consumption followed closely, expanding by 7.7% (vs. 5.8% in FY25), aided by healthy rural cash flows from an above-normal monsoon outturn in 2025, along with the salubrious impact of policy-led tailwinds from income tax relief and GST rate rationalisation ahead of the festive season onset.
• Exports held up at +6.3%, albeit with some moderation, aided by significant front-loading of merchandise exports to the US in H1 FY26. 

Inference and outlook

As the West Asia crisis enters its fourth month, with the energy supply blockade via the Strait of Hormuz still in place, ensuing spillovers are now likely to permeate the domestic economy more visibly. The Indian Crude basket continued to remain above USD 100 pb for the third consecutive month averaging ~USD 111 pb over Mar-May-26.

• The impact of sustained pressure from higher global oil prices is likely to operate through two channels.
• From a consumption perspective, the inflation pass-through from higher retail diesel and petrol prices (estimated to add 35 bps to headline CPI inflation over May-Jun-26) could begin to compress disposable household incomes and in turn demand or discretionary goods and services. 
• Elevated energy cost and accompanying supply disruptions are expected to exert direct upward pressure on input costs, likely to be exacerbated to depreciation in Rupee. This could weigh on producer margins and output, with the impact likely to be more pronounced on MSMEs. 
• Rural agricultural incomes and in turn demand could come under pressure from a below-normal monsoon anticipated this year (at 90% of LPA by the IMD), that could adversely impact kharif yields and rabi sowing later in the year. This could get accentuated by any potential fertilizer supply shortages.
• Additionally, the anticipated monetary policy tightening (of 50-75 bps beginning Oct-26) could weigh on interest-sensitive urban consumption. 
• Meanwhile, global demand prospects have dimmed which could potentially impart a negative impulse to domestic exports. 
• In its Jun-26 Economic Outlook, the OECD projects global growth to moderate to 2.8% in CY26 from 3.4% in CY25. However, under a prolonged energy disruption scenario, growth could decelerate to 2.1%. 
• On the fiscal front, revenue slippage from excise duty cuts, higher subsidy outgo and burden of cash transfers by states, could constrain space for capex-led infrastructure activity by the government. 

Taken together, these risks explain our downwardly revised FY27 GDP growth forecast of 6.2%.

Tables 1 & 2: India’s Quarterly GVA and GDP: Sectoral break-up of annualized growth

Tables 3 & 4: India’s Annual GVA and GDP: Sectoral break-up of annualized growth