India’s economy grows 7.8pc despite Middle East conflict headwinds

India’s economy expanded by 7.8% year-on-year in the quarter ending March, outperforming the 7.2% growth economists had predicted. The strong result followed key trade wins, including a landmark EU trade deal and reduced U.S. tariffs on Indian exports, which dropped from 50% to 10% after a Supreme Court ruling invalidated President Donald Trump’s tariff measures. However, the escalating conflict in the Middle East has introduced new risks, disrupting global energy supplies and pushing up India’s import costs. The Reserve Bank of India (RBI) responded by revising its inflation forecast upward to 5.1% for the fiscal year ending March 2027, while lowering its growth projection to 6.6%, down from 6.9%. The conflict has also weakened the rupee, compounded by foreign investor outflows, and analysts warn higher fuel prices could worsen inflation after the government passed global energy cost increases to consumers in May. Though inflation remains below the RBI’s 4% target as of April, El Niño-related weather disruptions may further strain agricultural production, risking food shortages and price hikes. The RBI now describes its monetary policy stance as cautious, reflecting broader global economic uncertainty. The central bank’s adjustments signal growing concerns over stability amid geopolitical tensions and domestic economic pressures.