India’s economy expanded at faster than expected rate in fiscal 2026, but economists cautioned that growth is likely to moderate this year amid rising energy costs and global uncertainty linked to the West Asia conflict.
Data released by the National Statistical Office (NSO) on Friday showed gross domestic product (GDP) growth accelerated to 7.8 per cent in the January-March quarter from 8 per cent in the preceding three months, taking full-year growth to 7.7 per cent, above the second advance estimate of 7.6 per cent.
Economists said resilient domestic demand, healthy private consumption and strong investment activity helped the economy weather the initial impact of the conflict in West Asia, which intensified during March.
“The growth was despite headwinds from the West Asia conflict,” said Dharmakirti Joshi, Chief Economist at CRISIL, noting that fourth-quarter growth remained well above the average pace recorded over the previous 10 quarters.
Rumki Majumdar, economist at Deloitte India, said the expansion was broad-based and underpinned by both demand and production. Gross value added (GVA) growth of 7.9 per cent exceeded GDP growth, reflecting strength across services, manufacturing and construction. Analysts, however, expect growth to slow in fiscal 2027 as higher crude oil and commodity prices, softer global growth, supply-chain disruptions and the prospect of a below-normal monsoon weigh on activity.
CRISIL maintained its FY27 GDP growth forecast at 6.6 per cent, while HDFC Bank projected growth at 6.5 per cent, assuming average crude oil prices of about USD 95 per barrel. Both institutions warned that rising input costs, weaker exports, elevated inflation and a potential moderation in investment activity could dampen economic momentum.
DBS Bank said the economy entered the new fiscal year from a position of relative strength but cautioned that the full impact of the West Asia conflict is yet to be reflected in economic data. The lender flagged risks from disruptions in critical input supplies, higher energy and food prices, and tighter financial conditions.
While economists remain broadly optimistic about India's domestic-demand driven growth story, most expect the economy to face a more challenging external environment this year, with risks to growth skewed to the downside.
“In fiscal 2027 (April 2026 to March 2027 financial year) growth is set to weaken amid multiple headwinds, including higher prices of crude and other commodities, softer global growth and forecast of a below-normal monsoon. Global supply chain disruptions are already intensifying cost pressures and reduced input availability is expected to add to the pressure,” said Joshi of CRISIL.
“We maintain our GDP growth forecast for fiscal 2027 at 6.6 oer cent, with risks tilted to the downside. Despite the slowdown in real GDP, the nominal GDP growth is set to be higher due to higher inflation based on both Wholesale Price Index and the Consumer Price Index,” he said.
Deloitte India’s Rumki Majumdar said the fact that GVA growth at 7.9 per cent outpaced GDP growth suggests that India’s expansion was not solely demand-driven but also backed by strong production momentum. Performance across services, manufacturing and construction indicates that the economy has entered a period of global uncertainty from a position of strength, which should help it better absorb potential supply-side shocks.
“We remain cautiously optimistic about the economic outlook in the next FY. We believe tensions in the Middle East will ease over the coming months and that associated supply-chain disruptions will gradually subside by the end of the year. India’s strong domestic demand, coupled with proactive government intervention, should help cushion the economy from external headwinds. The government’s front-loaded capital expenditure programme is already providing an important growth buffer at a time when private investment sentiment remains cautious,” she said.
Radhika Rao, Senior Economist & Executive Director, DBS Bank, said high frequency data for rural and urban demand points to relative resilience in the January-March quarter. “While the US-Iran conflict broke out towards the end of 4QFY26, output in the quarter was relatively insulated from bulk of adverse impact, with corporates tackling a build-up in cost pressures by tapping into inventories. Certain pockets of manufacturing activity, however, were impacted, including fertiliser, cement, etc,” said Rao.
Also read: RBI lowers GDP growth forecast to 6.6 pc
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