Economy remains resilient, but the road ahead is likely to be less forgiving than last year

India's economy continues to outperform expectations, with a GDP growth rate of 7.8 percent in the first quarter, surpassing both professional forecasts and the Reserve Bank of India's revised projection. This growth was driven by strong industrial activity, healthy consumption, and robust goods exports, along with the government's expanding support programs and the impact of GST rate cuts.

However, as the year progresses, the growth-inflation mix is expected to become less favorable, with growth moderating and inflation rising. This is due to factors such as disruptions from the West Asia conflict, unresolved tariff issues with the US, weather-related risks, and the absence of low crude oil prices and a normal monsoon.

El Niño conditions in the Pacific have also intensified, leading to below-normal rainfall and a 16 percent deficit in monsoon rainfall. While India's net irrigated area has increased to 59 percent, agriculture remains vulnerable to adverse weather, particularly for crops without buffer stocks. Despite robust retail credit growth and cushioning from government intervention, macroeconomic buffers are strong, with foreign exchange reserves covering over nine months of imports.

However, there are concerns about potential rate hikes due to persistent inflationary pressures and the impact of the unresolved conflict in West Asia on oil prices and the current account deficit.