Defying War, Weak Monsoon, How India's Economy 'Bloomed' At 7.8%

A war in the Middle East. Oil prices under pressure. A weak monsoon clouding the farm outlook. And global markets facing another bout of uncertainty.

And yet, (in the words of Prime Minister Narendra Modi), India's economy "bloomed" while "doomsayers were doomed".

For the April-June quarter, the Indian economy expanded 7.8 per cent, comfortably beating the Reserve Bank of India's 7 per cent estimate.

"India's strong growth amid global uncertainty is a result of a clear focus on building a strong and self-reliant economy. The Make in India initiative has given a strong push to manufacturing, investment, jobs and exports," Sohrab Bararia, Partner, Grant Thornton Bharat, told NDTV.

So, how did India manage to surpass growth expectations amid geopolitical uncertainties.

1. Manufacturing Refused To Slow Down

The factory floor turned out to be one of the biggest supports for the economy. Industrial activity remained firm despite uncertainty outside India. Manufacturing growth accelerated to 9.2 per cemt in the June quarter from 8.3 per cent a year earlier. The broader secondary sector grew 8.6 per cent.  

As is always the case, manufacturing created demand for transport, power, machinery, logistics and other services.

Besides, capital goods output rose 15.2 per cent, while electrical equipment production jumped 27 per cent. In simple words, companies were not simply producing more; they were also spending more on capacity.

2. Services Sector Absorbed The Shock 

If manufacturing was one engine, services were another.

The services sector grew 10 per cent in Q1 FY27, well ahead of the 8 per cent growth recorded in the same quarter last year. Financial, real estate, IT and professional services were particularly strong, expanding 12.1 per cent. 

This was significant for an economy like India, where services account for a large part of overall economic activity. A strong services sector can also cushion shocks elsewhere. Even when agriculture is hit by weather or industry faces supply disruptions, areas such as financial services, technology and professional services can continue to generate activity.

3. Investment Suddenly Found Another Gear

Perhaps the most encouraging part of the GDP numbers was investment.

Gross fixed capital formation, or GFCF, grew 11.9 per cent in real terms in April-June. That was more than double the 5.8 per cent growth recorded in the same quarter last year. It was also the strongest investment growth in 13 quarters. 

The significance goes beyond one quarter. Investment today can mean more factories, machines, roads, warehouses and other productive assets tomorrow.

The share of fixed investment in GDP rose to 34.3 per cent from 31.4 per cent a year earlier. At current prices, GFCF grew 20.4 per cent. 

Saurabh Garg, Secretary, Ministry of Statistics and Programme Implementation, described the investment trend as a healthy signal for the future.

4. Indians Kept Spending

Investment was not the only source of demand. Consumers stayed in the game too.

Private consumption expenditure grew 7.1 per cent in the first quarter, compared with 6.8 per cent a year earlier. Automobile sales, GST collections and other high-frequency indicators also pointed to healthy demand in both urban and rural markets. 

Chief Economic Adviser V Anantha Nageswaran said automobile purchases across two-wheelers, three-wheelers and four-wheelers had shown good growth, pointing to buoyancy in economic activity.

Rural demand also received support from measures such as PM-Kisan, higher minimum support prices and efforts to keep fertiliser affordable. The result was a domestic economy that did not appear overly dependent on one particular source of demand.

5. India Less Exposed To Immediate Global Shock

India is deeply connected to the global economy. But a large part of its growth engine is still domestic. 

The economy continued to benefit from domestic consumption, investment and services even as the conflict in the Middle East created uncertainty around energy supplies and global trade.

Exports also provided support. The new GDP estimates show real exports grew 12 per cent in the quarter. The combination gave India some breathing room.

It did not make the country immune to global shocks. But it meant that one external shock did not immediately translate into a domestic growth collapse.

"India's expansion was not produced by a short-lived increase in consumption. Gross fixed capital formation grew 11.9 per cent, compared with 5.8 per cent a year earlier. Household consumption remained firm with 7.1 per cent growth. Consumption is supporting the economy today and investment is adding the capacity needed to sustain it. This combination has helped India withstand a difficult global environment. Much of the demand is being generated within the country. So, weaker overseas growth does not immediately bring domestic activity to a halt," Vikram Subburaj, CEO, Giottus.com, told NDTV.

Oil Market Still The Biggest Threat 

India may have surprised on growth. But that does not mean the road ahead is easy.

The biggest external risk is crude oil. India imports roughly 85 per cent of its crude oil requirements. Any prolonged disruption to supplies from the Middle East can therefore quickly feed into inflation, the trade balance and household budgets.

Then there is the weather risk. The Finance Ministry has warned that intensifying El Niño conditions could affect crop yields during the flowering and grain-formation stages and create risks for the upcoming Rabi season.

"Most of the Q1 growth that we are seeing is driven by pricing and inventory gains from inflation, not real volume growth. And this inflation-led effect is flowing into the GDP growth numbers as well," Gaurav Didwania, Partner and Fund Manager at Qode Advisors, told NDTV.

Highlighting another chink in the armour, Subburaj said, "Unemployment increased from 5 per cent to 5.4 per cent during the quarter. India's growth is real, but its durability will depend on what follows: private investment must become less hesitant and higher output must produce better jobs and stronger household incomes. Until then, headline GDP will remain ahead of the economic experience of many Indians."