India growth beats forecasts

India's economy grew at a faster pace than expected in the first three months of 2026, driven by strong government spending and a robust services sector, official data showed on Friday. However, the outlook for the rest of the year has been clouded by the Middle East war.
Gross domestic product rose 7.8 per cent in the January-March quarter from the same period a year earlier, according to data from the statistics ministry.
That was down from the 8 per cent recorded in the previous quarter but still above market expectations of 7.3 per cent GDP growth.
A ministry news release said growth for the 2025-26 fiscal year, which ended in March, came in at 7.7 per cent — up from 7.1 per cent 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 the finalisation of a pact with Washington.
New Delhi depends heavily on imports for its oil and gas needs, making it particularly vulnerable to the global energy shock caused by the Iran war.
Elevated global crude 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.
Rising fertiliser prices could also add to India's farmer subsidy bill, complicating the government's budget calculations.
India's central bank cut its GDP growth forecast for the 2026-27 financial year to 6.6 per cent on Friday, down from an earlier projection of 6.9 per cent, even as economists warn that New Delhi may overshoot its budgeted fiscal deficit target for the current year.
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. In response, Indian policymakers have sought to bolster the currency and boost foreign inflows.
The Reserve Bank of India also unveiled moves on Friday that made it easier for overseas investors to buy stocks and government bonds.