THE GIST
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India's economy clocked a 7.8% growth from January to March. But the Iran war began at the end of February — meaning the quarter that just printed was largely insulated from a shock whose full damage is still arriving.
WHAT HAPPENED
The 7.8% GDP growth in the first quarter was driven largely by resilient domestic demand holding up, but mostly before the energy shock fully filtered through.
But the country's central bank isn't feeling heady. The Reserve Bank of India held interest rates at 5.25% while raising its inflation projection for the financial year ending March 2027 by 50 basis points to 5.1%, and tempered its economic growth forecast to 6.6% for the year, down from 6.9% projected earlier.
The currency is feeling it, too. On a year-to-date basis, the rupee has weakened by over 6% against the dollar. And New Delhi cannot be a buffer for its billion from the inflationary pressure anymore. India's expected to feel the pinch of inflation as the government passes on global fuel price hikes to consumers in May, after holding them off for a couple of months.
The halt in shipments through the Strait of Hormuz and the damage of some energy infrastructure has not only impacted oil, but several other important commodities. And India, as a major oil importer, sits directly in the path of that disruption.
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The story is not about the 7.8% growth, but rather the 6.6% projected growth. And inflation climbing to 5.1%, fast approaching the top of its tolerance band.
But India, in particular, is deeply vulnerable to energy shocks. It imports roughly 90% of its oil, making it among the most exposed major economies to a sustained Gulf disruption. It had some buffer with discounted Russian oil, but Washington rained on that plan. Now it's looking for deals from Venezuela.
The weather doesn't bring any better news. India is widely expected to face weather-related disruptions due to El Niño this year, which could cause crop shortages and push food prices higher, on top of fuel inflation that is already arriving at consumers' doorsteps.
WHAT'S NEXT
This quarter (April-June) will be the first clean read on how the Iran war shock has actually landed in India's economy. Given that the fuel price pass-through only happened in May.
The first quarter numbers seem like a mirage given that the economy was just hit in its face with a hose. The combination of fuel price increases, a weakening rupee, and potential El Niño food disruptions makes the second half of 2026 a genuine stress test.
