India’s economy grew by 7.8% in the April-June quarter, defying tariff threats and ongoing tension in the Middle East.
The growth was well ahead of the Reserve Bank of India’s 7% projection, which had been bracing for some moderation on higher oil prices, weak monsoon and geopolitical risk.
The growth, though, is unlikely to move the central bank off its expected hold on rates at its meeting on Oct. 5-7. The central bank will most likely want to see whether this quarter’s strength broadens before it adjusts policy.
Growth was broad-based rather than led by a single sector.
On the supply side, services grew the fastest of the three broad sectors, driven by a surge in financial, real estate, IT and professional services, followed by manufacturing.
On the demand side, investment grew the strongest—more than double the pace of a year earlier. Consumption and exports also held up, with exports posting strong growth despite elevated input costs from the West Asia conflict.
But resilience this quarter doesn’t mean the risks have gone away. Elevated commodity prices tied to the conflict could keep squeezing input and transportation costs across the economy and continue pressure on inflation.
We continue to expect the central bank to deliver one 25 basis-point rate cut later this fiscal year, most likely at the December or February review, after holding steady at its October meeting to let this quarter’s strength and the harvest risk play out.
Given the scale of growth in this quarter, our base case is that GDP moves up toward 7% for the year 2026-27, above the RBI’s own 6.7% revised projection.
Looking ahead
GDP: We’re raising our full-year forecast toward 7% growth for fiscal 2026-27, above the RBI’s revised 6.7% projection.
Monetary policy: We expect the RBI to hold its policy rate steady at 5.25% at the Oct. 5-7 meeting, then deliver one 25 basis-point reduction later this fiscal year, most likely at the December or February review.
