Agriculture Trails as India’s Economy Posts Strong Q1 Growth

India’s economy expanded by a stronger-than-expected 7.8% in the first quarter of FY26, but the performance again underscored agriculture’s relative weakness compared with the rest of the economy. Data released by the National Statistics Office show that while manufacturing and construction registered robust growth of 7.7% and 7.6% respectively, and services surged by 9.3%, agriculture managed only 3.7% growth in April–June. Though higher than the 1.5% growth recorded a year earlier, the increase was largely attributed to the tail end of the rabi harvest. The critical kharif output, under pressure from patchy monsoon distribution, will be reflected only in the coming quarters.

Madan Sabnavis, chief economist at Bank of Baroda, noted that agriculture’s performance was essentially residual. “Agriculture growth of 3.7% is more of residual rabi harvest which will not cover the kharif crop for this year, which will get reflected in Q3 numbers (partly in Q2),” he said.

The broader economy’s strength was more evenly distributed. Manufacturing benefited from robust corporate profits despite weaker industrial output, construction was boosted by government spending and housing demand, and services activity was dominant across trade, finance and public administration.

By contrast, agriculture and allied activities — which still employ nearly half of India’s workforce — accounted for just 15% of gross value added in the quarter. Its slower growth also has wider consequences for consumption demand in rural India, which remains under pressure.

Aditi Nayar, chief economist at ICRA, cautioned that rural consumption trends are tied closely to farm performance and could weaken if households face pressure from tariffs and job losses. “The outlook for private consumption is bolstered by income tax relief, 100-bps rate cut, healthy progress of kharif sowing, and upcoming rationalisation of GST slabs, even as discretionary purchases by households could be deferred in Q2 until tax cuts are implemented during the festive season,” she said. “Moreover, potential job losses in sectors affected by US tariffs could sour sentiment for some households.”

The US’s recent imposition of a 50% tariff on Indian exports will primarily hurt manufacturing and industrial goods, but the knock-on effects on employment could spill into rural consumption, adding another layer of pressure on farm-dependent households.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, underlined that the overall GDP print offers upside but warned against complacency. “The sharply higher-than-expected 1QFY26 GDP data provides a reasonable upside to our earlier full-year estimates of 6.2%. However, we remain fairly cautious on the way ahead amid expected slowdown in exports from higher tariffs along with deferring in production ahead of GST rate cuts,” she said.

That caution applies as much to agriculture as to exports. Without a strong kharif season, rural incomes may struggle to keep pace with urban demand, constraining overall consumption momentum.

For now, Q1’s numbers confirm the economy’s resilience, but the agricultural sector continues to lag behind the broader growth story — a reminder that India’s headline figures conceal deep unevenness between booming cities and the struggling countryside.