India’s economy got off to a pacy start this fiscal year with its gross domestic product (GDP) expanding 7.8% in the first quarter over the previous year’s April-June period. This beat the expectations of economists by a wide margin.
Government data released on Monday shows that the strength was broad-based, with all sectors barring mining performing well. Manufacturing, utilities and construction grew at high single-digit rates, as did most services, although the financial and professional services segment logged double-digit expansion. Agriculture’s 3.6% growth was in line with its long-term trend, but mining output fell 2.4%.
Overall, the economy seems to have held up well against headwinds arising from the war in West Asia and its supply disruptions, not to mention US tariff-rattled trade and an uncertain geopolitical environment. Resurgent domestic demand on the back of last year’s GST cuts helped cushion the external blow.
Still, buoyant crude oil prices remain a risk. Plus, US Fed chair Kevin Warsh’s Jackson Hole speech suggests we can expect tighter dollar credit, with implications for the relative appeal of Indian assets. Perhaps India should brace for a policy rate hike too.