India’s economy beats growth estimates, defying Middle East turmoil

India's economy surprised observers by outpacing growth forecasts in the April to June quarter, according to official data released on Monday. Despite the disruption caused by the Iran conflict, the country's GDP expanded by 7.8% year-on-year, driven by a strong services sector, and surpassed market predictions of 7.3% growth. While this figure marked a slight drop from the revised 8.6% growth in the previous quarter, it reinforced India's position as the world's fastest-growing major economy.

Prime Minister Narendra Modi's government, grappling with political setbacks and policy challenges, can take solace in this positive economic momentum. The year began on a robust note for India, with strong growth and progress towards a long-awaited trade deal with the US. However, this momentum slowed when negotiations stalled.

The war in the Middle East has led to increased energy costs and higher import bills, contributing to inflation. India's heavy reliance on imports for oil and gas makes it particularly susceptible to the global energy shock stemming from the conflict. The country's central bank initially anticipated lower growth for the current fiscal year due to the turmoil, but this projection was later revised upwards.

While India has managed to mitigate the worst economic effects of the war through limited and staggered fuel price hikes, analysts caution that this buffer may not hold if tensions escalate further in the Middle East or if global crude prices remain elevated. Recent sweeping consumption and income tax cuts have bolstered domestic demand and shielded India's economy from geopolitical tensions, including the tariff blitz imposed by US President Donald Trump.