India’s economy grows faster than expected amid rising energy costs

India just delivered a number that made forecasters look timid. The economy expanded 7.8% year-on-year in the January-March 2026 quarter, comfortably beating consensus expectations of around 7.2% for the period.

For the full fiscal year ending March 2026, GDP growth landed at 7.7%, well above the 7.4% that most projections had penciled in. The data, released by the Ministry of Statistics and Programme Implementation on June 5, tells a story of an economy firing on multiple cylinders despite a hostile global backdrop.

What drove the surprise

The services sector was the standout performer. Trade, hotels, and transportation grew 12.5% during the quarter, a figure that reflects both pent-up consumer appetite and a structural shift toward services-driven growth.

Government expenditure also played a meaningful role. Capital spending on infrastructure projects continued to flow through the fiscal year’s final months, creating jobs and boosting demand in adjacent sectors like construction materials, logistics, and financial services.

The 7.8% Q4 figure marks a notable acceleration from the 7.0% recorded in the same quarter a year earlier. And the full-year 7.7% growth rate represents a meaningful step up from FY25’s 7.1%.

The headwinds that didn’t win

First, energy prices. Ongoing tensions in the Middle East, particularly related to the West Asia and Iran conflict, have pushed oil prices higher. India imports roughly 85% of its crude oil needs, making it acutely sensitive to price swings in global energy markets.

Second, the rupee. India’s currency has been under pressure, depreciating against the dollar in a trend that makes imports more expensive and adds to inflationary concerns.

At 7.7% for the full year, India is growing at roughly double the pace of most emerging market peers and several multiples faster than advanced economies wrestling with their own structural challenges.

What this means for investors

The World Bank projects India’s growth to moderate to 6.6% in FY27. The reasoning isn’t complicated: sustained high energy prices, potential monetary tightening to combat imported inflation, and a more uncertain global trade environment could all trim growth at the margins.

The rupee’s trajectory deserves particular attention. A continued depreciation would raise import costs, squeeze margins for companies reliant on foreign inputs, and potentially force the Reserve Bank of India into tighter monetary policy earlier than it might prefer.

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