11 - 05 - 2026

India’s GDP growth hits 8% in Q1, but headwinds loom: BMI

Our Bureau
Mumbai, May 11, 2026

India’s economy grew 8% on a year-on-year (YoY) basis in the first quarter of 2026, surpassing earlier projections of 7.8%, buoyant on a surge in domestic demand and the lingering benefits of tax reforms that bolstered economic activity.

The country’s economy is now poised to grow 6.7% on a YoY basis in FY27, while that for FY26 (year ended March 30, 2026) would be 7.7%, according to a BMI, a Fitch Solutions company, report.

BMI’s outlook for FY27 is unchanged from its earlier predictions, but that for FY26 represents a 0.1 percentage point upward revision.

The acceleration in the first quarter was underpinned by robust consumer appetite and industrial indicators.

BMI said that that “recently released data indicating domestic demand surged during the quarter” was a primary driver for the upgrade. Despite a doubling of the policy uncertainty index over the past year, new vehicle registrations climbed 24% in March 2026, while electricity generation returned to growth at 2.7% following a previous contraction.

This resilience is due to a combination of low inflation throughout 2025 and significant salary increases, which boosted real incomes. Additionally, the Goods and Services Tax (GST) reforms implemented last September served to “buoy present economic health” by simplifying tax laws and reducing rates for items such as insurance and small cars.

Cautious FY27 outlook

The outlook for FY27 remains more cautious, with BMI maintaining a forecast of 6.7% growth as the “effects of last year’s tax reforms will fade as input costs increase”. There are already signs that this momentum is waning; vehicle registration growth slowed to 9% in April, and electricity consumption growth cooled to just 0.9% in March.

External shocks, particularly the conflict in Iran, present significant downside risks to the Indian economy. BMI warns that India remains among the most sensitive nations in Asia to energy price volatility. Their models suggest that if Brent Crude prices rise to about $90 per barrel, India’s GDP growth could fall by between 0.4 and 0.7 percentage points.

Adding to these pressures is a “below normal” rainfall forecast for the upcoming monsoon season due to El Nino, which the International Monetary Fund estimates could shave 0.1% off the national GDP. While looser monetary policy is expected to support fixed capital formation, the combination of restricted energy supplies and weather-related disruptions is likely to “slow consumption growth while raising price inflation” in the year ahead.