Synopsis
India’s economy surged a better-than-expected 7.8% in the March quarter, beating forecasts and pushing growth for FY26 to 7.7%. This strong performance was driven by strong private investment and consumption, defying concerns over the war in West Asia. The government remains determined to continue its reform program aimed at maintaining economic momentum.
YEARSThe war will likely impact the economy in the future, as rising prices of energy and other inputs as well as supply disruptions will dampen activity and demand.New Delhi: India’s economy grew at a better-than-expected 7.8% in the March quarter from a year earlier, belying fears that the war in West Asia could hurt the economy, taking growth for FY26 to 7.7%, according to official data released on Friday. The good results of private investment and consumption supported these figures.
“GDP growth surprised to the upside in the fourth quarter, driven by stronger-than-expected growth in consumption, investment and valuable goods (gold effect),” said Sakshi Gupta, senior economist at HDFC Bank. An ET poll predicted 7.3% growth for the quarter. Gross domestic product (GDP) grew by 8%, revised upwards from 7.8% when data was last released, in the December quarter and 7% in the March quarter of the previous year. The economy grew by 7.1% in FY25.
To be sure, economists expect the impact of the war to start showing up in economic data in the coming months. Finance Minister Nirmala Sitharaman said the government is determined to move forward with its Reform Express, implementing decisive policy measures to ensure positive economic momentum in the face of global challenges.
Updated estimates likely by August
This is the second quarterly GDP release under the revised series which features a new base year and broader coverage. The GDP series will integrate the new series of the industrial production index and the producer price index with the base year 2022-23, and release the updated estimates by August. Nominal GDP – a measure of the economy at current prices, without adjusting for inflation – grew 9.1% in the fourth quarter and 8.9% in FY26.
These figures suggest that the economy did not suffer a material impact from the conflict in West Asia during the quarter, said EXECUTION chief economist Aditi Nayar. The war began on February 28.
Gross fixed capital formation, a measure of investment activity, rose 10.8% in the fourth quarter year-on-year, the highest level in three years under the new base year FY23 series. Private consumption increased by 7.1% compared to 8.2% in the previous quarter, while public spending increased by 4.9%, compared to 4.6%.
“The increase in investment stands out, especially as government spending moderated in the fourth quarter of FY26, indicating that the expansion of private investment was likely the main driver,” Gupta said.
Agriculture accelerated to 3.6% from 1.7% in the previous quarter, while manufacturing sector growth moderated to 7.3% from 12.8%. The services sector grew 9.9% in the fourth quarter from a year earlier, compared to 9.9% in the third quarter. The construction sector recorded strong growth of 8.4% compared to 6.7% in the previous quarter.
OUTLOOK
The war will likely impact the economy in the future, as rising prices of energy and other inputs as well as supply disruptions will dampen activity and demand.
The Reserve Bank of India on Friday revised its growth forecast for FY27 downward to 6.6% from 6.9% forecast in April. The expected poor monsoon will also likely weigh on growth.
Devendra Kumar Pant, chief economist at India Ratings and Research (Ind-Ra), warned that the ongoing conflict and poor rainfall linked to El Niño conditions could affect growth prospects. Ind-Ra forecasts growth of 6.7% in FY27, while ICRA expects growth of less than 6.5%.
Gupta said growth is expected to slow in Q1FY27 as high energy costs and their impact on margins weigh on growth. However, optimistic export growth as well as household consumption are expected to provide support in the first quarter, she said.
Chief Economic Advisor V Anantha Nageswaran said macroeconomic stability measures and supply assurances can return India to a 7% growth trajectory in FY28, once external conditions improve.