A growing workforce with rising incomes provides not just near-term support for consumption but also long-term confidence in India’s demographic dividend
The month of August has delivered a resounding message from India — one that stands out amid the turbulence of the global economy. The recently released GDP data for the first quarter of FY 2025–26 confirms what many had intuited but few expected to see so strongly: India’s economy is resilient, reform-oriented, and ready for renewed growth.
Data from MOSPI shows that India’s real GDP grew at 7.8 per cent in April–June 2025, far exceeding analyst expectations and marking a five-quarter high. This performance makes India not only the fastest-growing major economy but also one that is steadily widening its lead over peers.
The numbers are encouraging not merely for their scale but for what they signify about the underlying health of the economy. Supply-side drivers — manufacturing, construction, and services — recorded strong expansion, reflecting broad-based momentum.
On the demand side, robust private consumption and investment provided the bedrock of growth. Private Final Consumption Expenditure (PFCE) grew by 7 per cent, pushing its share of GDP to 60.3 per cent — the highest first-quarter level in 15 years.
Several recent policy steps have buoyed household sentiment: Income tax reliefs announced in the Union Budget, a 100 basis point cut in the repo rate, and healthy progress in Kharif sowing, each of which has amplified disposable incomes and eased financial conditions.Meanwhile, Gross Fixed Capital Formation (GFCF) grew by 7.8 per cent, underpinned by a surge in both public and private investments. The Government’s capital expenditure in Q1 was 30.1 per cent higher than the average for the same quarter in the past three years, reflecting its continued focus on infrastructure.
The private sector, too, showed renewed confidence, with new investment announcements rising 3.3 times year-on-year. With RBI data showing that capacity utilisation has risen both sequentially and year-on-year, the manufacturing sector appears poised for further expansion.
Equally heartening is the macroeconomic stability accompanying this growth. Consumer Price Index (CPI) inflation eased to an eight-year low in July 2025, giving households greater spending power and businesses more predictable cost structures. The Union government’s fiscal deficit-to-GDP ratio is expected to moderate further to 4.4 per cent in 2025–26, showing steady consolidation from the pandemic-fuelled high reached in FY 2020–21. The labour market is showing encouraging signs. Formal sector job creation in Q1 FY26 was 1.6 times higher than a year ago. Urban unemployment remains well below pre-pandemic levels, while hiring activity has stayed buoyant — the Naukri JobSpeak index points to continued recruitment momentum.
A growing workforce with rising incomes provides not just near-term support for consumption but also long-term confidence in India’s demographic dividend.
Concerns about the deflator being low are also unfounded. Converting nominal GDP (valued at current prices) into real GDP (valued at constant prices) by applying an inflation indicator is a longstanding and globally accepted practice. A small gap between real and nominal GDP growth is simply a statistical reflection of the prevailing low-inflation environment, not a data anomaly.
The GDP deflator covers the full spectrum of goods and services in the economy, unlike CPI (limited to household consumption) or WPI (which excludes services). One of the former Chief Statisticians has even noted that the GDP deflator is “possibly the most accurate measure of inflation.” If inflation is low, the deflator will naturally also be low. This is precisely the case in Q1 FY 2025–26.
Beyond the numbers, August brought a symbolic milestone. S&P upgraded India’s long-term sovereign credit rating to ‘BBB’ from ‘BBB’, the first upgrade in 18 years. The recognition was underpinned by strong economic growth, enhanced monetary policy credibility, and a clear government commitment to fiscal consolidation.
For India, this upgrade holds real economic consequences. Lower borrowing costs, higher investor confidence, and increased foreign capital inflows are likely to follow.Of course, India is not immune to global headwinds. The imposition of fresh US tariffs has unsettled exporters, and the external environment remains fraught with geopolitical uncertainty and shifting trade alignments.
Yet, the government and industry appear to be preparing themselves for the brace, with reports of constant engagement between them. Growth may moderate in the quarters ahead as the base effect wanes, but the baseline is now higher.
With reforms deepening, investment gathering pace, and macroeconomic stability intact, India looks to sustain growth well above global averages. India’s Q1 FY26 print is, however, not a finish line. The recovery is broadening, but sustaining higher growth will depend on further reforms, keeping inflation expectations anchored, and raising productivity.
With the GST Council due this week, locking in GST rationalisation with a stable, lower-rate structure becomes important. If both steady macro anchors from the Centre and a competitive reform push from all the states move in lockstep, India can convert resilience into a higher, more stable growth path.
Rouhin Deb is the Chief Economist, Chief Minister’s Secretariat, Government of Assam