India growth beats forecasts despite geopolitical tensions

Mumbai: India’s economy grew at a faster pace than expected in the first three months of 2026, official data showed Friday, even as the Middle East war clouds the outlook for the rest of the year.

Gross domestic product rose 7.8 percent in the January-March quarter from the same period a year earlier, helped by a robust services sector, according to data from the statistics ministry.

This was down from the 8 percent recorded in the previous quarter but still above market expectations of 7.3 percent growth.

“GDP growth has been resilient... despite geopolitical tensions,” Teresa John of Nirmal Bang Institutional Equities told AFP, adding that the quarterly figures had also been helped by a solid performance in the industry and construction sectors.

A ministry news release said growth for the 2025-26 fiscal year, which ended in March, came in at 7.7 percent - up from 7.1 percent the previous year.

Friday’s reading reaffirms India as the world’s fastest growing major economy and will be welcome news for policymakers who face a slate of challenges for the current fiscal year.

Prime Minister Narendra Modi’s government started the March quarter on solid footing, with robust GDP growth and the announcement of a framework for a much-delayed interim trade deal with the United States.

That momentum quickly unravelled because of the Middle East conflict and the latest threat of additional US tariffs potentially delaying a pact with Washington.

India’s trade minister, Piyush Goyal, said on Friday that he hopes to “execute” the first tranche of a deal next month, but the effects of the Iran war remain a pressing concern.

New Delhi depends heavily on imports for its oil and gas needs, making it particularly vulnerable to the global energy shock caused by the conflict.

Higher oil prices not only threaten to raise input costs and stoke inflation but also drive up India’s import bill, potentially widening the current account deficit to a 14-year high.

The first casualty, analysts say, would be India’s growth trajectory.

Investments and agriculture

“Given the uncertainty around the resolution of the conflict, elevated energy prices for an extended period poses a downside risk to growth in the near term, including muted prospects for investment demand, negative impact on corporate profitability and dampening consumer sentiments,” Aditi Nayar of ratings agency ICRA said in a note.

Nayar added that a weak monsoon forecast and “potential development of El Nino conditions” also have dulled India’s agricultural output projections.

India’s central bank cut its GDP growth forecast for the 2026-27 financial year to 6.6 percent on Friday, down from an earlier projection of 6.9 percent, even as economists warn that New Delhi may overshoot its budgeted fiscal deficit target for the current year.

Adding to policymakers’ woes, foreign investors have offloaded well over $20 billion in Indian shares so far this year, putting pressure on the Indian rupee, which has been among Asia’s worst-performing major currencies in 2026.

Among measures aimed at bolstering the rupee and boosting foreign inflows, the Reserve Bank of India unveiled on Friday amendments that would make it easier for overseas investors to buy stocks and government bonds.

The government also said it would cut capital gains taxes on investments made by foreign institutional investors in government bonds, a move it said would “attract stable long-term foreign capital flows”.