India remains fastest-growing major economy as growth hits 7.8%

India’s economy expanded faster than expected in the first three months of 2026, official data showed on Friday, reinforcing its position as the world’s fastest-growing major economy even as the war in West Asia casts uncertainty over the outlook for the rest of the year.

Gross domestic product rose 7.8 percent in the January-March quarter compared with the same period a year earlier, supported by a robust services sector, according to data released by the statistics ministry.

The figure was lower than the 8 percent recorded in the previous quarter but comfortably above market expectations of 7.3 percent growth.

“GDP growth has been resilient… despite geopolitical tensions,” Teresa John of Nirmal Bang Institutional Equities told AFP, adding that the quarterly figures had also been helped by a solid performance in the industry and construction sectors.

A ministry news release said growth for the 2025-26 fiscal year, which ended in March, came in at 7.7 percent, up from 7.1 percent the previous year.

The latest data is likely to provide a boost for policymakers facing several challenges in the current fiscal year.

Prime Minister Narendra Modi’s government entered the March quarter with strong momentum, supported by robust economic growth and the announcement of a framework for a much-delayed interim trade deal with the United States.

That momentum was later disrupted by the conflict in West Asia and the latest threat of additional US tariffs, which could delay a trade pact with Washington.

India’s trade minister, Piyush Goyal, said on Friday that he hopes to “execute” the first tranche of a deal next month, but the effects of the Iran war remain a significant concern.

India relies heavily on imports to meet its oil and gas requirements, leaving it particularly exposed to the global energy shock triggered by the conflict.

Higher oil prices threaten to increase input costs, fuel inflation and raise India’s import bill, potentially widening the current account deficit to a 14-year high.

Analysts say India’s growth trajectory could be the first casualty.

Investments and agriculture

“Given the uncertainty around the resolution of the conflict, elevated energy prices for an extended period poses a downside risk to growth in the near term, including muted prospects for investment demand, negative impact on corporate profitability and dampening consumer sentiments,” Aditi Nayar of ratings agency ICRA said in a note.

Nayar added that a weak monsoon forecast and “potential development of El Nino conditions” also have dulled India’s agricultural output projections.

India’s central bank cut its GDP growth forecast for the 2026-27 financial year to 6.6 percent on Friday, down from an earlier projection of 6.9 percent, even as economists warn that New Delhi may overshoot its budgeted fiscal deficit target for the current year.

Adding to policymakers’ concerns, foreign investors have sold well over $20 billion worth of Indian shares so far this year, putting pressure on the Indian rupee, which has been among Asia’s worst-performing major currencies in 2026.

In a move aimed at supporting the rupee and encouraging foreign investment, the Reserve Bank of India announced amendments on Friday that would make it easier for overseas investors to buy stocks and government bonds.

The government also said it would cut capital gains taxes on investments made by foreign institutional investors in government bonds, a measure it said would “attract stable long-term foreign capital flows”.