India defies West Asia war concerns as Q4 GDP growth hits 7.8%; risks remain ahead
“GDP growth surprised on the upside in Q4, led by stronger-than-expected growth in consumption, investments and precious goods (gold effect),” said Sakshi Gupta, chief economist at HDFC Bank. ET Survey had predicted 7.3% growth for the quarter. Gross domestic product (GDP) increased by 8% in the December quarter, revised upwards from 7.8% in the latest data, and 7% in the previous year’s March quarter. The economy grew by 7.1% in the 25th fiscal year.
Of course, economists expect the impact of the war to begin to be seen in economic data in the coming months. Finance minister Nirmala Sitharaman said the government is committed to moving forward with the Reform Express by implementing decisive policy measures to ensure positive economic momentum amid global challenges.
Forecasts Updated Likely By August
This is the second quarterly GDP release in a revised series with a new base year and broader scope. The GDP series will include the new Industrial Production Index series with a base year of 2022-23 and the Producer Price Index, and will publish updated estimates by August. Nominal GDP, a measure of the economy at current prices without adjusting for inflation, rose 9.1% in the fourth quarter and 8.9% in FY26.
ICRA chief economist Aditi Nayar said the figures showed that the economy did not see the material impact of the West Asian conflict in the quarter. The war started on February 28.
Gross fixed capital formation, a measure of investment activity, increased by 10.8% year-on-year in the fourth quarter, the highest level in the last three years under the new FY23 base year series. Private consumption rose 7.1% compared to 8.2% in the previous quarter, while government spending increased from 4.6% to 4.9%. “The increase in investments is notable, especially as public spending slowed in the 26th quarter, indicating that the expansion in private investments is likely to be the key driver,” Gupta said.
While agriculture accelerated from 1.7% to 3.6% in the previous quarter, manufacturing growth slowed to 7.3% from 12.8%. The services sector grew by 9.9% in the 4th quarter compared to 9.9% in the 3rd quarter. The construction industry recorded a high growth of 8.4% compared to 6.7% in the previous quarter.
OVERVIEW
The war is likely to impact the economy moving forward, as high energy and other input prices and supply disruptions will negatively impact activity and demand.
The Reserve Bank of India on Friday cut its FY27 growth forecast to 6.6% from 6.9% in April. The expected below-average monsoon is also likely to drag down growth.
Devendra Kumar Pant, chief economist at India Ratings and Research (Ind-Ra), warned that ongoing conflicts and poor rainfall linked to El Niño conditions could impact growth prospects. While Ind-Ra projects FY27 growth at 6.7%, ICRA expects growth below 6.5%.
Gupta said growth is expected to slow down in the first quarter of FY27 as rising energy costs and their impact on margins adversely impact growth. However, optimistic export growth along with household consumption is expected to provide support in the first quarter, he said.
Chief economic advisor V Anantha Nageswaran said macro stabilization measures and supply assurances could bring India back to a growth trajectory of 7% in FY28 once external conditions improve.
