On December 29, 2025, a worker is busy at a construction site near Amazon India’s headquarters in Bengaluru.
Photo by Idrees Mohammed | AFP | Getty Images
Despite the economic challenges posed by the Middle East conflict, India’s economy surprised analysts by expanding at a robust 7.8% year-on-year during the three months ending in March, surpassing expectations.
A Reuters survey had predicted a 7.2% growth rate for the January-March period, slightly below the 7.8% recorded in the previous quarter.
The beginning of the quarter saw a significant boost in India’s trade outlook. The country secured a monumental trade agreement with the European Union and convinced the United States to reduce tariffs on Indian goods from 50% to 18%.
Further tariff reductions to 10% followed a U.S. Supreme Court ruling that deemed President Donald Trump’s tariffs illegal.
But then the Iran war began at the end of February, which has since become a severe risk to India’s economy and is anticipated to hurt growth and raise inflation.
On Friday, India’s central bank raised its inflation projection for the financial year ending March 2027 by 50 basis points to 5.1%, while tempering the economy’s growth forecast to 6.6% for the year, down from 6.9% projected earlier.
Energy supply disruptions caused by the conflict have inflated India’s import bill, piling pressure on the rupee that has already been hit by record foreign investor outflows.
The world’s fastest-growing major economy is expected to feel the pinch of inflation as the government has passed on global fuel price hikes to consumers in May, after holding them off for a couple of months.
As of April, inflation remains under the RBI target of 4%, but India is widely expected to face weather-related disruptions due to El Nino this year, which could cause crop shortages and push food prices higher.
The Reserve Bank of India on Friday said the policy has turned “cautious” owing to the deteriorating global economic conditions.
