How India’s Growth Momentum Could Falter in Q1 FY26 Despite Strong March Quarter—Explained

India’s economy is expected to slow from its January-March 2025 highs. While the country has surpassed its peers during the period by growing at 7.4% rate, now analysts forecast roughly a lower growth rate in Apr–June 2025 (Q1 FY2025-26).

The Reserve Bank of India (RBI) has projected India's Q1 gross domestic product (GDP) growth at 6.5%. A Reuters poll and private economists also generally expect Q1 GDP to be in the low- to mid-6% range. In other words, growth is expected to remain robust by global standards, but not as strong as the previous quarter.

The April–June quarter of FY26 has been a mixed bag for the Indian economy. While industrial output, exports, and private investment faced headwinds, sectors like agriculture and services—particularly transport and construction—gained traction. Government-led capital expenditure also provided a boost, helping to offset some of the slack in private sector activity.

Patchy Rural Demand

Farm output could benefit from the above-normal monsoon in 2025 which would eventually lift the incomes of rural households. The RBI also noted that a “bumper rabi harvest” and an “above normal monsoon” are expected to strengthen rural consumption and keep food inflation in check. Reuters also reported that rural consumption is poised to remain a bright spot in the Indian economy, supporting growth in the ongoing fiscal year.

However, economists warn the recovery will be “patchy”. Experts pointed out that uneven rains and earlier-than-usual monsoon bursts disrupted planting in some areas as well.

"“The rural demand is still not broad-based, but is gaining momentum. General capital expenditure has picked up pace due to front-loading by both the Centre and the states, even as private capex marked a sharp slowdown. Growth in Q1 has more or less been similar (6-6.5 per cent) to what it was in the last year,”  IDFC chief economist Gaura Sengupta told Business Standard.

Weaker Private Capex

Even as the rural economy shows signs of resilience, broader economic momentum could be restrained by global headwinds. Escalating trade wars, geopolitical tensions, and tightening financial conditions pose risks to global growth and cross-border capital flows, potentially dampening India's recovery trajectory.

Gaura Sen Gupta, chief economist at IDFC First Bank told Reuters that India's corporate capital expenditure is expected to remain cautious due to rising global uncertainties, particularly from the US trade war.

The Centre for Monitoring Indian Economy (CMIE) data also revealed new investment projects from the private sector slipped to ₹4.1trn in Q1, marking an 81.35% less than the ₹21.7trn worth of outlays in the previous quarter. On a year-on-year basis, this tally was 42% higher, albeit on a low base — fresh capex plans by India Inc. had slipped to a 14-quarter low of ₹2.85trn in Q1FY25.

Government Capex & Services Hold Up Growth

Fortunately, public spending and services are helping offset some private-sector slack. Government capital expenditure (capex) remains at an elevated pace. Official data for Q4 FY2024-25 showed government capital spending up 9% year-on-year.

According to the HSBC final India Services Purchasing Managers' Index (PMI), India's services sector enjoyed its strongest growth in ten months at 60.4 in June. This was supported by robust demand and cooling price pressures.

Risks

For investors and policymakers, the key risks are clear. Inflation is unusually low by recent standards with CPI inflation averaging 3–3.5% in early 2025. It provides the RBI room to cut rates. Still, any upside, from oil price spikes or bad weather cutting food output, could tighten policy. Fiscal policy is also on the radar. The government is targeting a 4.5% of GDP deficit in FY2025-26, slightly below last year’s 4.8%, which means spending is not going to surge. And globally, developments from U.S.-India trade talks to a slowdown in Europe or China will matter.