India's economy posted a surprisingly strong 7.8% year-on-year growth in the January-March quarter, the government reported Friday. The figure beat the 7.2% forecast in a Reuters poll, driven by robust private investment, farm output, and construction activity that largely offset the early effects of the Middle East conflict.
Gross Value Added, a more accurate measure of underlying economic activity, grew 7.9% during the quarter. For the full fiscal year ending in March, India's GDP growth stands at 7.7%, according to the National Statistics Office.
Private Investment and Government Spending Private consumer spending, accounting for 57% of GDP, grew 7.1% in the March quarter. Government spending rose 4.9%, while private investment surged 10.8%-the highest in three years under the new series with a base year of 2022/23.
Sectoral Performance Manufacturing output rose 7.3% year-on-year, albeit down from 12.8% in the previous quarter. Construction activity grew 8.4%, up from 6.7% in the prior quarter. Farm output, which employs over 40% of India's workforce, expanded 3.6% compared to 1.7% in the previous quarter.
Challenges Ahead Despite the strong data, headwinds are mounting. The central bank kept its benchmark rate unchanged, signaling a possible hawkish shift due to inflation pressures and a weak rupee. A disappointing monsoon-the lowest rainfall in 11 years-could also hurt growth going forward.