India’s economy weathered the global energy-supply shock better than initially feared, with Q1 FY27 real GDP growth surprising on the upside at 7.8% YoY, supported by a resilient domestic demand and a stronger net-exports contribution. Private consumption expenditure remained healthy despite moderating to 7.1%, aided by earlier policy measures and limited energy-cost pass-through, though softer employment conditions, rising inflation, and monsoon-related risks to rural incomes remain near-term constraints. Investment momentum strengthened on robust government capex and likely resilient private capex, though fiscal consolidation could temper support over the rest of FY27. Real GVA growth stayed strong at 8.2% in Q1 FY27, led by manufacturing, electricity and other utilities, and double-digit services growth, offset by moderation in agriculture and construction and weakness in mining. The strong Q1 outturn creates an upside bias to our FY27 real GDP growth forecast of 6.7%, which we now expect to exceed 7%. Set against this, higher inflation could add to the deflator drag, while elevated crude oil prices and geopolitical risks remain the key downside risks. Strong economic activity, alongside broadening inflation pressures, reinforces our expectation of 50–75 bps of cumulative repo rate hikes beginning late FY27, with the cycle potentially extending into FY28.
