The figure was higher than economists' expectations of 7.1% year-on-year growth in a Reuters poll, but slower than the revised 8.6% growth in the previous three months.

"Q1 growth came in at 7.8% versus our estimate of 7.5%, led by upbeat domestic consumption, continued support from government spending, investments and healthy export performance.

Input cost pressures due to the West ‌Asia conflict were offset by higher volume growth with sectors like manufacturing and electricity, gas growing by close to 9%. The stand-out sector remained services, with financial, real estate and professional services growing by a high of 12% in the quarter.

Going forward, we revise our GDP growth estimate for the full year to 7% from 6.8% taking into account the strong Q1 print and with monsoon performance broadly holding up during the Kharif season, limiting the risk for rural demand."

"India's strong growth surprised on the ​upside for the 12th straight quarter. Prima facie, growth is led by investments and exports reflecting a balance of domestic and external demand. This raises upside to FY27 GDP growth forecast of 6.7% and should ease ​the way for monetary policy normalisation.

The growth was led by services (close to 10% seen over a year-long period) and manufacturing (9.2% year-on-year). Investment emerged in the numbers as the standout surprise, growing 10.1% compared with the first quarter of the previous year.

Private final consumption expenditure (PFCE) held up too, rising to 7.1% in the first quarter of the current financial year from 6.8% in the same period of the last financial year.

The investment surge tells a similar story. Much of the jump in gross fixed capital formation is traceable to an 11% year-on-year rise in central government spending, including a 24% increase in capital expenditure, alongside inventory swings and valuation effects from elevated gold and commodity prices rather than a genuine pickup in private capex. State-level government spending, meanwhile, appears far weaker – tax devolution to states fell 20% year-on-year – suggesting the investment strength is concentrated at the Centre rather than distributed across the economy.

Manufacturing's GVA grew 9.2% year-on-year. Exports increased 25.8%, while imports rose 30.9%, widening the net export deficit to 2.7% of GDP from 1.4% a year earlier.

Where did the stimulus go?

Perhaps the most striking finding is how little traction India's extraordinary policy support has generated. Over the past year, the government and RBI have deployed GST and income-tax rationalisation, 125 basis points of rate cuts, and roughly Rs 14-15 lakh crore of liquidity infusion. Despite this, net indirect tax collections collapsed from 7.6% growth to -0.4%, implying a sharply negative tax elasticity of -0.29.

The deflator puzzle

Adding to the skepticism is a persistent anomaly in the GDP deflator – the metric used to convert nominal growth into real growth. Nominal GDP grew 10.3% in Q1FY27 while real GDP grew 7.8%, implying a deflator of just 2.5%. That is well below both CPI inflation (3.9%) and wholesale/producer price inflation (around 9.2–9.4%), which is difficult to reconcile even under India's newer double-deflation methodology.

Using more historically consistent weightings, the “real” deflator should be closer to 6%, which would push real GDP growth down to 4.0-4.5% – much below the headline figure. This isn't a one-off quirk either; the anomaly has persisted for four consecutive quarters.

Services-oriented businesses look relatively resilient, but sectors tied to mass-market and rural consumption warrant caution until household income and employment data show a durable, broad-based improvement.