India’s Economy Grows at 7.8% in Q4, Outpacing Expectations Amid Global Uncertainties
India’s economy delivered a robust performance in the December 2025 quarter, expanding by 7.8% year-on-year, according to official data released on Friday. This growth, exceeding expectations, was driven by strong private investment and consumption, despite concerns about the impact of the West Asia conflict. The revised GDP figures for the quarter mark a significant rebound from the 7% growth recorded in the same period the previous year, lifting FY2025-26 growth to 7.7%.
“GDP growth surprised on the upside for Q4, led by stronger-than-expected growth in consumption, investments, and valuables (gold effect),” said Sakshi Gupta, principal economist at HDFC Bank. An ET Poll had forecast 7.3% growth for the quarter, underscoring the economy’s resilience.
Strong Private Investment and Consumption Drive Growth
The impressive growth was fueled by a surge in private investment, which rose by 10.8% in the December quarter—the highest in three years under the new FY23 base year series. Private consumption also showed resilience, growing by 7.1%, while government spending increased by 4.9%. Gupta highlighted that “the rise in investments stands out, particularly as government spending had moderated in Q4 FY26, signalling that expansion in private investments was likely the key driver.”
The services sector remained a major contributor, growing by 9.9% in Q4, while the construction sector recorded an 8.4% expansion. Agriculture accelerated to 3.6% from 1.7% in the preceding quarter, and manufacturing growth moderated to 7.3% from 12.8%.
Outlook and Challenges Ahead
Despite the positive momentum, economists warn that the ongoing conflict in West Asia and potential supply chain disruptions may weigh on growth in the coming months. The Reserve Bank of India (RBI) recently revised its FY2026-27 growth forecast downward to 6.6% from 6.9%, citing elevated energy costs and the risk of a subpar monsoon linked to El Niño conditions.
“The war is likely to impact the economy going ahead as higher energy and other input prices and supply disruptions dent activity and demand,” said Aditi Nayar, chief economist at ICRA. India Ratings and Research (Ind-Ra) projects FY2026-27 growth at 6.7%, while ICRA expects sub-6.5% growth.
Devendra