According to reports from Business Standard, manufacturing demonstrated strong performance in the first quarter of FY26, with real growth of 7.7% at current prices compared to 9.2% at constant prices (2022-23). This represents a notable shift from the previous quarter, where manufacturing growth stood at 9.9% at current prices and 7.9% at constant prices in Q4 FY26. The manufacturing momentum has now carried into Q1 FY27, with manufacturing growth expanding 9.2% and secondary sector growth accelerating to 8.6% from 7.9% in the previous quarter, as reported by ETCFO.
The latest Q1 FY27 data reveals a significant shift toward investment-led growth, with gross fixed capital formation (GFCF) growing 11.9% year-on-year, well ahead of private consumption growth of 7.1%. According to ETCFO, this represents an acceleration from the previous quarter's GFCF growth of 10.5%, with the sector's share of GDP reaching around 34%. The investment surge is being driven by both government capex front-loading and a pickup in private investment across certain sectors. HDFC Bank attributes the strong investment performance partly to front-loading of central government capex, along with increased private investment activity. This investment momentum has prompted economists to raise their full-year growth forecasts, with Morgan Stanley lifting its FY27 real GDP growth forecast to 7.3% from 6.7%, while HDFC Bank raised its estimate to 7.1% from 6.8%.
As reported by Business Standard, the deflationary pressure in manufacturing was primarily driven by deflators falling 1.4% in Q1 FY26, compared to 1.8% growth in Q4 FY26. This price decline was unique to the manufacturing sector, as it did not occur in agriculture and allied sectors or services sectors during the same quarter. The manufacturing sector's experience of deflation contrasted sharply with the inflationary pressures witnessed in agriculture and services sectors during Q1 FY26. According to ETCFO, the GDP deflator increased to 2.3% from 0.6% in the previous quarter, while nominal GDP growth accelerated to 10.3% from 9.2%. HDFC Bank expects nominal GDP growth of 11% to 12% in FY27, assuming commodity prices stabilise and producers gain greater ability to pass higher input costs through to output prices.
According to ETCFO, services continued to be the fastest growing broad sector, though pace moderated with tertiary sector growth slowing to 10% from 11.5% in the previous quarter. Within services, trade, hotels and transport growth moderated to 8.5%, while public administration and defence services grew 7.5%. Agriculture growth also moderated to 3.6% from 3.9%. Private consumption grew 7.1% in Q1, compared with 7.5% in the previous quarter, remaining the largest component of GDP despite moderating. HDFC Bank expects consumption to moderate in coming quarters as producers increasingly pass higher input costs through to consumers, with CPI inflation expected to rise to 5.9% in Q3 FY27. However, consumption demand held up in Q1 due to limited pass-through of higher crude prices to retail fuel prices and continued support from GST cuts and lower interest rates.
