India's Q1 GDP growth resilient amid global uncertainties, says CEA Nageswaran

India's Economy Shows Resilience Despite Global Headwinds

India's economy grew 7.8% in the April-June quarter, and Chief Economic Adviser V Anantha Nageswaran said Monday that the country's growth performance continues to show "continued resilience" despite global uncertainties and tensions in West Asia. Speaking after the release of the first quarter GDP data, Nageswaran noted that the domestic economic momentum is "very strong" in the near term, though global uncertainties remain.

Nageswaran highlighted that quarterly real GDP growth picked up after a slowdown towards the latter part of the previous fiscal year. "What we are witnessing is continued resilience in the Indian growth performance," he said. He added that all three sectors—primary, secondary, and tertiary—contributed to the quarter's robust growth, with agriculture contributing slightly less while manufacturing and services performed strongly.

Sectoral Performance and Government Support

Manufacturing and services continued to perform well despite uncertainties related to the West Asia conflict, Nageswaran said. He attributed part of the resilience to the government's efforts to ensure the availability of critical inputs was not disrupted during the crisis. External demand remained supportive, with core and manufacturing exports recording healthy growth.

"The fact that manufacturing exports are rising indicates the beneficial effects of FTAs and the diversification efforts of the government," Nageswaran said. He added that India would need to continue diversifying its export markets while maintaining cost competitiveness. The trade agreement with the European Union is expected to become operational by the end of the calendar year, he said.

Domestic demand also remained strong. Private final consumption expenditure performed well, and bank credit growth improved, indicating strengthening investment activity, according to Nageswaran.

RBI Measures and External Sector Support

Nageswaran said the Reserve Bank of India's successful mobilisation of FCNR(B) deposits has lent "very strong" support to India's balance of payments and provides a floor to the domestic currency against the US dollar. "RBI's successful mobilisation of FCNR deposits lends a very strong level of support for the balance of payments and also provides a floor on the Indian rupee vis-a-vis the United States dollar," he said.

The RBI introduced the USD-INR Forex Swap facility covering FCNR(B) deposits, ECBs, and OFCB inflows on June 8 to strengthen India's external sector position and support foreign exchange liquidity amid global market uncertainties.

Risks and Outlook

Nageswaran flagged concerns regarding the level of interest rates, potential disruptions to energy commodity supplies, and food prices. "In the near term, the domestic economic momentum is very strong, but globally, we are continuing to see uncertainties. We have flagged it in the Economic Review for August," he said.

He noted that crude oil prices had not risen as sharply as initially feared, partly due to subdued global demand, particularly from China. However, higher diesel and natural gas prices could weigh on private consumption. Inflation had increased from the unusually low base recorded last year, but headline inflation remained "well behaved" and within the target range, he said. The RBI was monitoring possible second-round effects before making decisions on monetary policy.

Nageswaran said fiscal risks had been "greatly alleviated," and that India was "reaping the benefits of structural reforms in an uncertain environment." He concluded that as of now, domestic momentum and export performance have delivered another quarter of strong growth, vindicating the beneficial effects of macroeconomic structural reforms implemented over the last 12 years.