Explained: India’s economy: Back to goldilocks or a false dawn?

Over the past three financial years, India's economy grew at a GDP growth rate of more than 7%, while inflation rates dropped significantly. However, many analysts expected the US-Israeli war on Iran to negatively impact this trajectory. The war would likely result in increased prices of crude oil, fertilizers, and other imports, lower foreign investments and demand for Indian exports, worsened trade balance, and a weakening of the rupee exchange rate. Additionally, high temperatures caused by the El Niño phenomenon could further increase inflation.

Meanwhile, Prime Minister Narendra Modi urged Indians to reduce their consumption of gold, fuel, work from home, and use public transport. Six months after the start of the war, macroeconomic data shows India did not fare as poorly as initially feared. The GDP growth rate, inflation rate, and current account balance did not show the predicted impairment.

Analysts now question whether India has returned to the "Goldilocks" situation or if the data hides significant risks. HSBC economists have highlighted factors contributing to economic resilience, such as a 125-basis point (1.25 percentage points) cut in the repo rate between December 2024 and December 2025, the removal of US tariffs on Indian exports, and manufacturers front-loading production due to energy concerns.

While monthly retail inflation has increased since October 2025, overall inflation remains contained and close to the RBI's 4% target. Many had feared a steep rise in inflation, but this has not been the case. India's current account balance has remained relatively stable despite the economic disruptions caused by the war.