India's GDP growth beats expectations at 7.8% in April-June quarter

India's economy grew faster than economists had expected in the April-June quarter, with gross domestic product (GDP) rising 7.8% from a year earlier, official data showed on Monday.

The growth rate matched the expansion recorded in the previous quarter and came in above the 7.3% median forecast in a Bloomberg survey. The stronger-than-expected performance also eased concerns that the Iran war and disruption around the Strait of Hormuz could weigh heavily on India's economic activity.

Growth stays strong despite external risks

Data released by the Ministry of Statistics and Programme Implementation showed that GDP expanded 7.8% in the first quarter of the financial year that began in April.

The Reserve Bank of India (RBI) had projected 7% growth for the quarter. For the full financial year, the central bank expects India's economy to expand 6.7%.

The latest numbers reinforce India's position as the world's fastest-growing major economy and offer some support to the government's efforts to present the country as resilient to global economic shocks.

India has remained particularly vulnerable to developments around the Strait of Hormuz, a crucial route for oil shipments. The country imports nearly 90% of the crude oil it consumes.

Rate outlook could come under focus

The stronger GDP figures could also influence the outlook for interest rates.

The RBI kept its benchmark policy rate unchanged at 5.25% in August. However, policymakers have indicated that rates could come under pressure later this year if inflationary pressures increase.

Faster economic growth could therefore add another factor to the central bank's policy decisions as it weighs growth against price stability.

Growth still below long-term target

Despite the strong quarterly performance, India's current pace of expansion remains below the rate the government estimates will be required to achieve Prime Minister Narendra Modi's goal of making India a developed nation by 2047.

The government estimates that annual growth of around 9.25% would be needed to reach that objective.

For now, the 7.8% quarterly expansion provides a stronger-than-expected start to the new financial year, even as global trade, energy prices and geopolitical tensions continue to pose risks to the economy.