India’s GDP grows 7.8% in June quarter, beating forecasts as oil risks mount

India’s economy expanded 7.8% in the April-to-June quarter, beating forecasts as strong manufacturing, consumption and investment helped it withstand energy and supply-chain pressures from the Iran war.

The increase in real gross domestic product exceeded the 7.1% median forecast in a Reuters poll and the Reserve Bank of India’s projection of 7%. It was, however, slower than the revised 8.6% expansion recorded in the preceding quarter, according to Reuters.

Growth accelerated from a revised 6.9% in the same quarter a year earlier, according to government data released on Monday.

Real gross value added, which measures value added at basic prices before net taxes on products are included in GDP, increased 8.2%, compared with 7% a year earlier. Nominal GDP grew 10.3%.

The results show that domestic demand remained resilient through the opening months of the financial year, even as fighting in West Asia disrupted shipping, raised energy costs and weakened the global outlook.

Manufacturing output expanded 9.2%, up from 8.3% a year earlier. The broad category covering financial, real estate, information technology and professional services grew 12.1%, making it one of the strongest contributors to the headline number.

Electricity, gas and utility output rose 8.9%, reversing a 1.8% contraction in the year-earlier quarter. Construction grew 7.7%, supported by continued infrastructure and building activity.

Private consumption increased 7.1%, indicating that household demand remained an important source of growth. Gross fixed capital formation, a broad measure of investment, rose 11.9%, more than double the 5.8% increase recorded a year earlier.

Other indicators in the official release supported the investment picture. Capital-goods production increased 15.2%, cement output grew 8.9% and finished-steel consumption rose 8.3%. Household vehicle registrations increased 15.9%, while commercial-vehicle sales rose 18.3%.

Exports of goods and services grew 12% in real terms, while imports declined 1.1%. Government consumption increased by a more modest 4.3%.

The figures point to a relatively broad expansion rather than growth driven by a single sector. Manufacturing and construction supported the production side, while consumption, investment and exports strengthened expenditure.

There were important weak spots.

Agriculture grew 3.6%, slowing from 4.4% a year earlier. Mining output contracted 2.4% after expanding 12.4% in the comparable quarter. Rural output remains exposed to the uneven distribution of monsoon rainfall, a risk the RBI highlighted in its August policy review.

Oil prices represent one of the clearest threats to growth in subsequent quarters.

Brent crude rose above $90 a barrel on Monday after renewed US-Iran fighting near the Strait of Hormuz. US forces struck Iranian rocket launchers on Larak Island before Tehran retaliated against American bases in the region, according to Reuters.

India relies on imports to meet nearly 85% of its crude requirements, making it one of the major economies most exposed to a sustained increase in energy prices.

Higher oil costs can increase transport and manufacturing expenses, erode household purchasing power and force the government to choose between allowing retail fuel prices to rise and absorbing part of the shock through taxes or subsidies. They can also widen the trade deficit and put renewed pressure on the rupee.

The June-quarter figures capture the earlier phase of the Iran war but not the renewed escalation in July and August. The effect of the latest fighting on corporate margins, consumer prices and investment decisions is likely to become clearer in data for the next two quarters.

The strong result also adds another consideration for monetary policy. The RBI has projected full-year growth of 6.7% and kept its policy rate at 5.25% while retaining a neutral stance.

Growth above the central bank’s forecast strengthens the case for keeping rates unchanged in the immediate term. At the same time, higher crude prices threaten to lift inflation. The combination is likely to keep policymakers cautious as they assess whether food and fuel pressures spread more widely through the economy.

Sakshi Gupta, principal economist at HDFC Bank, raised her full-year growth forecast to 7% from 6.8% following the data.

“Q1 growth came in at 7.8% versus our estimate of 7.5%, led by upbeat domestic consumption, continued support from government spending, investments and healthy export performance,” Gupta told Reuters.

The IMF projects Indian growth of 6.4% in the financial year and has identified higher oil prices and a monsoon weakened by El Niño as the principal downside risks. Its July outlook said consumption and services would continue to support growth.

Monday’s estimates were compiled under India’s rebased national accounts series, which uses 2022-23 as its base year. The new series incorporates revised producer-price and industrial-production indices, corporate results, tax information and other administrative data.

The revised methodology is intended to capture structural changes in the economy and broaden statistical coverage. The government cautioned that the quarterly estimates remain subject to revision as more complete information becomes available.

The first-quarter performance gives India some protection against the energy and geopolitical shocks ahead. Sustaining growth near 7%, however, will depend on the oil disruption remaining manageable, investment broadening beyond public infrastructure and a small number of capital-intensive industries, and household demand withstanding higher prices.