India’s economy expanded by 7.8 percent year-on-year in the three months ending March, surpassing market expectations despite mounting economic pressures linked to the conflict in the Middle East.
Economists surveyed by Reuters had projected growth of 7.2 percent during the January-March quarter, compared with 7.8 percent recorded in the preceding quarter.
The strong performance came after India secured major trade gains earlier in the quarter, including the conclusion of a landmark trade agreement with the European Union and a reduction in U.S. tariffs on Indian exports from 50 percent to 18 percent. Tariffs were later cut further to 10 percent following a U.S. Supreme Court ruling that struck down President Donald Trump’s tariff measures as unlawful.
However, the outbreak of the Iran conflict towards the end of February has emerged as a significant threat to the country’s economic outlook, raising concerns over inflation and slowing growth.
On Friday, the Reserve Bank of India (RBI) revised its inflation forecast for the financial year ending March 2027 upward by 50 basis points to 5.1 percent, while lowering its economic growth projection to 6.6 percent from the earlier estimate of 6.9 percent.
The conflict has disrupted global energy supplies, driving up India’s import costs and adding pressure on the rupee, which has already been weakened by substantial foreign investor outflows.
Analysts warn that higher fuel prices could further fuel inflation after the government passed increased global energy costs on to consumers in May, having previously shielded households from price rises for several months.
Although inflation remained below the RBI’s 4 percent target as of April, economists caution that weather disruptions linked to El Niño could affect agricultural production, potentially leading to food shortages and higher prices.
Reflecting growing uncertainty in the global economy, the central bank said its monetary policy stance had become “cautious” amid worsening international economic conditions.
