India's GDP stays robust in January-March as domestic demand offsets external weakness

NEW DELHI, June 5 : India's economy grew an unexpectedly strong 7.8 per cent year-on-year in the January-March quarter, the government said on Friday, as robust private investment, farm output and construction activity offset the early impact of the Middle East conflict.

The print, the second in an updated data series with a revised base year and wider coverage, was well above a forecast of 7.2 per cent growth in a Reuters poll of economists.

Compared with the previous three months, however, the January-March reading marked a marginal slowdown. The government revised up the growth rate for the previous three months to 8.0 per cent from an earlier 7.8 per cent.

"The disruption due to the West Asia conflict in March seems to have had a limited impact on economic momentum," said Sakshi Gupta, principal economist at Mumbai-headquartered HDFC Bank, while adding that growth would likely moderate starting from the April-June quarter.

Gross value added, a more accurate measure of underlying economic activity, grew 7.9 per cent during the January-March quarter, the data showed. GVA strips out the volatile components of national accounts such as indirect taxes and government subsidies.

India estimates GDP growth for the full fiscal year that ended in March at 7.7 per cent, the National Statistics Office said, compared with a forecast of 7.6 per cent from February.

The country's chief economic adviser, V Anantha Nageswaran, had forecast economic growth in the current fiscal year at 7 per cent to 7.4 per cent in a projection issued before the Middle East conflict began.

India has been one of the economies hardest hit by the Iran war that has stretched into a fourth month with no immediate prospects of a peace deal between Washington and Tehran. India is the world's third-largest crude importer and consumer, and it is heavily dependent on supplies from the Middle East.

The Middle East war is seen pulling down growth in the Indian economy to 6.6 per cent this fiscal year, the central bank said earlier in the day, as it kept its benchmark interest rate unchanged while signalling a possible hawkish shift due to inflation pressures and weakness in the rupee.

Domestic inflation is set to pick up and fiscal and current account balances are set to widen, which has battered financial markets.

A disappointing monsoon, with the lowest rainfall in 11 years, could hurt growth going ahead.

Manufacturing output rose 7.3 per cent year-on-year in January-March, compared with a revised expansion of 12.8 per cent in the previous quarter, while construction activity stood at 8.4 per cent, up from revised growth of 6.7 per cent in the previous quarter.

Growth in farm output, a sector which employs more than 40 per cent of the country's enormous workforce, came in at 3.6 per cent in the fourth quarter of 2025/26 compared with a revised 1.7 per cent a quarter earlier.

PRIVATE INVESTMENT, GOVERNMENT SPENDING SUPPORT

Private consumer spending, which accounts for 57 per cent of Indian GDP, grew 7.1 per cent in the March quarter, from a revised 8.2 per cent expansion in the previous three months.

Government spending rose 4.9 per cent compared with an expansion of 4.6 per cent in the previous quarter, the data showed, while private investment grew 10.8 per cent, up from the revised 8.2 per cent growth a quarter earlier.

Investment growth by the private sector was the highest in the last three years in the new series, with base year as 2022/23.

"A notable deterioration in private consumption was offset by stronger investment," said Alexandra Hermann Prasad, lead economist at Oxford Economics in London.

"We believe activity has already started slowing and will remain soft," Prasad said.