India, economy runs despite war in the Middle East

NEW DELHI - Despite the impact of the early phase of the war in the Middle East, the Indian economy grew by 7.8% year-on-year in the first quarter of the year. The figure was well above the growth forecasts made by economists polled by Reuters and Bloomberg (7.2% and 7.3% respectively), but in line with the previous three months (+7.8%). Private investment, agricultural production and construction were three of the main drivers of growth.

The National Statistics Office estimates that GDP grew by 7.7% in the fiscal year ending 31 March, up slightly from the 7.6% forecast in February. "The fallout from the Middle East conflict in March appears to have had a limited impact on economic growth," says Sakshi Gupta, chief economist at Hdfc Bank, adding, however, that growth is likely to slow from the April-June quarter.

Among leading observers, both public and private sector, there is a widespread opinion that the current year will see a setback. Before the outbreak of the war, the government's chief economic advisor predicted growth of between 7 and 7.4 per cent, but the oil crisis is pushing expectations down sharply: according to forecasts released by the Reserve Bank of India (Rbi) - which on Friday left rates unchanged at 5.25 per cent - in the 12 months to 31 March 2027 India will grow by 6.6 per cent. In April, the estimate was 6.9 per cent.

While keeping rates firm, the RBI also announced measures to attract foreign capital, including expanding foreign investors' access to government bonds, with the aim of encouraging capital inflows and reducing pressure on the rupia.

India has been one of the economies hit hardest by the war with Iran, now in its fourth month, because the country is the world's third largest importer and consumer of oil and is heavily dependent on supplies from the Middle East, especially since the United States government began imposing extra tariffs on New Delhi to discourage purchases of Russian crude. To limit the economic fallout from the war, India has raised retail fuel prices, tightened rules on imports and urged citizens to reduce non-essential consumption to preserve foreign exchange reserves.