Strong quarter quickens pace, but risks remain

India's economy expanded by a robust 7.8 percent in the first quarter of the current financial year, outpacing forecasts from most analysts and even the central bank. The Monetary Policy Committee had predicted growth of 7 percent for the year, but the strong performance suggests the full-year growth estimate could be revised upwards.

Both industry and services sectors showed healthy growth, with manufacturing expanding at a strong 9.2 percent and construction maintaining steady growth at 7.7 percent. Services, particularly financial, real estate, and professional services, expanded by a remarkable 10 percent. This strong performance is evident in indicators like cement production and steel consumption.

The RBI's recent State of the Economy report noted that both manufacturing and services firms had seen improvements in operating profits. Private consumption also remained robust, growing at 7.1 percent. High sales of vehicles and other machinery indicate strong demand from urban and rural areas. Investment activity was also positive, with the capital goods segment growing by 15 percent and the government's capex increasing by 24 percent.

Bank loans to industry and for consumption have also grown at a healthy rate. Although the monsoon recovery has aided kharif sowing, there are concerns that the growth momentum may slow down in the coming quarters. External risks include ongoing trade and geopolitical tensions, with Brent crude oil prices rising following the US-Iran conflict. Additionally, a strengthening El Niño could pose domestic challenges, requiring close monitoring.