A series of external shocks, from higher U.S. tariffs on Indian goods to the U.S.-Israeli war with Iran that drove crude oil prices sharply higher, have failed to derail India’s position as the world’s fastest-growing major economy.
However, global uncertainty adds to already moribund private investment, which economists say is critical for generating well-paying jobs for the millions entering India’s workforce each year, leaving government capital expenditure to shoulder a larger share of the growth burden.
India’s gross domestic product (GDP) likely grew 7.2% year-on-year in the January-March quarter, down from a better-than-expected 7.8% expansion in the previous quarter, according to the median forecast in a Reuters poll of 45 economists conducted between May 22 and June 1. Estimates ranged from 6.1% to 7.7%.
Gross value added (GVA), a measure of economic activity that excludes taxes and subsidies, was estimated to have expanded 7.3%, based on a smaller sample of forecasters.
The data, due at 1030 GMT on Friday, June 5, will be the second quarterly print under India’s revised national accounts series, after the government shifted the GDP base year to 2022/23 from 2011/12 and updated parts of its estimation methodology in February.
“Underlying drivers suggest a transition from broad-based expansion to a more uneven growth profile. Government spending likely maintained a healthy pace of growth…(while) external demand weakened amid global disruptions,” said Dhiraj Nim, economist at ANZ. “Industrial activity appears to have softened, with slower manufacturing volumes, exports and margin pressures weighing on output. Agriculture provided a modest offset, with a slight improvement in performance cushioning growth.”
Sajjid Chinoy, chief India economist at J.P. Morgan, broadly agreed.
“Services growth is expected to remain strong, supported by a continued acceleration of credit growth and higher GST collections. In contrast, manufacturing growth is likely to be more subdued.”
Chinoy said the impact of the Middle East crisis was likely to become more visible from the second quarter.
The cautious outlook is reflected in economists’ medium-term forecasts. GDP growth is expected to slow to 6.5% this quarter and average 6.7% in the current fiscal year before rising to 6.9% in the next.
Investors will also closely watch the Reserve Bank of India‘s (RBI) monetary policy decision, due on Friday. Nearly 80% of economists in the Reuters poll expected the central bank to leave the policy rate unchanged at 5.25%, although most forecast at least one rate hike by end-2026.