India's GDP stays robust at 7.8% in January-March as domestic demand offsets external shocks

NEW DELHI: India's economy grew by 7.8% year-on-year in the January-March quarter of fiscal year 2025-26, exceeding market expectations and showing resilience despite the early impact of the conflict in the Middle East.

Data released by the National Statistics Office on Friday showed growth was above the 7.2% forecast in a Reuters survey of economists. However, it marked a slight moderation from the previous quarter, for which growth was revised upward to 8.0% from 7.8%.

Gross Value Added (GVA), a measure that excludes the effects of taxes and subsidies, expanded by 7.9% during the quarter.

The government also revised its estimate for full-year economic growth in fiscal year 2025-26 to 7.7%, compared with a previous forecast of 7.6%.

Economists said the disruption caused by the Middle East conflict during March had only a limited impact on economic activity. However, they cautioned that growth could weaken in the coming quarters as higher energy prices and geopolitical uncertainty continue to weigh on the outlook.

India, the world's third-largest importer and consumer of crude oil, remains heavily dependent on energy supplies from the Middle East. Earlier on Friday, India's central bank projected economic growth of 6.6% for the current fiscal year, citing inflation pressures, rupee weakness and the ongoing regional conflict.

Private investment emerged as a key driver of growth during the quarter, rising 10.8%, compared with revised growth of 8.2% in the previous quarter. According to the new GDP series based on 2022-23 prices, this was the strongest private investment growth recorded in the past three years.

Construction activity increased 8.4%, up from 6.7% in the preceding quarter, while manufacturing output expanded 7.3%, slowing from a revised 12.8% growth rate.

Agricultural output also improved, growing 3.6% compared with 1.7% in the previous quarter. The farm sector employs more than 40% of India's workforce.

Private consumption, which accounts for about 57% of India's economy, expanded 7.1% during the quarter, down from a revised 8.2% growth in the previous three months.

Government expenditure increased 4.9%, compared with 4.6% growth in the preceding quarter.

Economists noted that stronger investment offset weaker consumer spending during the quarter. However, they warned that economic activity could soften in the months ahead amid inflation concerns, widening fiscal and current account deficits, and the risk of below-average monsoon rainfall, with India facing its lowest rainfall level in 11 years.