Rewards of Resilience: India’s growth surges despite oil shocks, tariffs and a weak monsoon outlook

As India posted 7.8 per cent growth in the first quarter of 2026-27, Prime Minister Narendra Modi posted an elated message of congratulations from faraway Bishkek. In his message, the prime minister said, “Congratulations to my countrymen…the world is sunk in war, and there is news of war from all sides. The world is in trouble; supply chains are badly disturbed. From the time of Covid, there is no sign of stability. Despite all that, India continues to grow at rapid speed.”

It is unusual for a prime minister to express joy at quarterly GDP statistics. But these are not ordinary times, nor is India's eco nomic performance made of ordinary stuff. Since March this year, India has been buffeted by an acute disruption of oil and gas sup plies from West Asia. The closure of the Strait of Hormuz from early March until now has led to a severe constriction in the flows of crude oil and natural gas. But at no point did the government allow the economy to falter or the Indian consumer to bear the brunt of these developments.

The results were obvious on August 31 evening. Real GDP grew at 7.8 per cent in Q1 of 2026-27, while growth measured in terms of real Gross Value Added (GVA) stood even higher at 8.2 per cent. When one adds taxes to the figure for GVA after netting out subsidies, one obtains GDP. In normal times, GVA is a better measure of economic activity, although there are exceptions when GDP is a better measure. There has been an artificial controversy over the GDP-GVA divergence even now. But this is a political argument.

Growth during Q1 2026-27 was broad based. Manufacturing grew at 9.2 per cent compared with the same period last year when it posted 8.3 per cent growth. The services sector grew at 10 per cent, two percentage points more than the same period last year. This is the single largest sector of the Indian economy. More importantly, Gross Fixed Capital Formation (GFCF)—broadly a measure of investment—galloped at 11.9 per cent, more than double the rate from the same period last year when it stood at 5.8 per cent. The rate of growth of exports stood at 12 per cent, double the 6 per cent posted at the same period last year.

This is the single largest sector of the Indian economy. More importantly, Gross Fixed Capital Formation (GFCF)—broadly a measure of investment—galloped at 11.9 per cent, more than double the rate from the same period last year when it stood at 5.8 per cent. The rate of growth of exports stood at 12 per cent, double the 6 per cent posted at the same period last year.

These are no small achievements in a world that is witnessing wars and a generalised economic malaise, especially in the West. India is probably unique among economies of its size in maintaining a high rate of growth in political and economic circumstances that militate against growth. A combination of high-level fiscal and monetary coordination and regulatory measures that have been well-timed has stood India in good stead.

Every time India posts good economic growth figures, artificial controversies—political in nature—mushroom almost instantaneously. This has happened since August 31 for the latest round of GDP data.

It is important to make a distinction between potential head winds to economic growth and attempts at questioning growth and data. The latter fall in the category of what the prime minister described vividly in his message: “On the other hand, even in India, people sank into hopelessness, and among echoes of lies these people are trying to spread despair. But discarding all this, the country has posted 7.8 per cent growth. We have to maintain this speed…for this we need atmanirbhar Bharat.”

There are real concerns about India's economic performance in 2026-27. There are three factors of concern on this score. The first is the external environment, which is extremely negative and challenging. The immediate concern is about oil prices and oil supplies. In the past two to three days, the price per barrel of Brent crude has hovered around $90 to $92, a price that is significantly above India's comfort level. Above $75, every additional dollar of increase disrupts growth-inflation dynamics, making fiscal and monetary coordination harder. But this is just one visible aspect of the economic equation. The “meat” of the external challenge is the complex interactions changing geopolitical equations, wars and their real-time economic effects. A case in point is the hostile attitude of the US under Donald Trump towards every functioning economy in the world. China and Canada are well known examples, but India is not far behind. The uncertainty over a trade deal with the US has persisted for more than a year now. Indian exports have been subjected to shifting tariffs that have ranged from 25 per cent to 50 per cent, and even these have bobbed up and down. Now, India has been threatened with a 100 per cent tariff for purchasing oil from Russia. It is as if the US is constantly searching for an excuse to penalise India. Over this period, India has diversified into different export markets, and exports have not been affected, at least noticeably. But it is also a fact that exports, a vital engine of India's growth, now require virtual day-to-day management by the government. This is largely true for economic management more broadly. That is one big reason behind the robust GDP growth figures seen in recent years.

The second is an additional threat this year. The world is experiencing a very strong El Niño episode, probably the strongest since the last quarter of the 19th century. This has the potential to create havoc for agriculture worldwide, and India is no exception to the trend. In almost 80 per cent of the cases when El Niño has been reported in the Western Pacific Ocean, India has experienced a shortfall in its Long Period Average (LPA) rainfall. This is true for the last 30-35 years.

The third, and among the more tangible factors affecting growth figures, is the so-called base effect. The base effect is a statistical effect due to very high or low values in growth rates for a particular quarter or a year. India has consistently reported high GDP growth for the past many quarters. For example, 7.8 per cent growth in Q1 FY2026-27 is quite high. When data for Q1 2027-28 is reported, this high value in Q1 FY 2026-27 may lead to the 2027 28 growth figures seeming artificially low. Hence, the predicted “moderation” in growth in the year ahead.

Against these real, tangible concerns about India's economic performance lies the domain of sullenness and the constant nit picking and search for excuses to claim that India's economic growth is an illusion.

At its basest political level, this involves simply denying that India is growing rapidly. The strategies at this level range from shifting the goalposts of comparison to outright denial. On a more “sophisticated” plane, the economists polish the base-level argument and give it an intellectual spin. One favourite trope is that if India is growing at such a rapid rate, then why are not enough jobs— “good jobs”—being created? The trick here is to drop in the expression “good jobs”, which is essentially a reference to white collar jobs. Such claims ignore the large number of jobs created in the services sector and the fact that in the age of automation and artificial intelligence (AI), skills matter. In claims about an alleged “jobs crisis”, there is no mention—not even a whiff—of the “skills crisis.” The output of India's degree mills is literally unemployable. With increasing adoption of AI, the danger to India's IT sector is real. What is to be done to avert that and save the future of a large and well-trained workforce in that sector? These issues, again, are never addressed in this “sophisticated” economic rhetoric.

Finally, there are technical arguments against India's growth numbers. These have varied over time. They allegedly involve a “smell test.” If growth numbers are high, then other high-frequency indicators should also be high. The other part of this argument is that high growth is an artefact of changes in the methodology of estimating GDP. The argument was first made in 2019 when it was claimed that when India changed the base year for the measurement of GDP from 2004-05 to 2011-12 that led to an overstatement of GDP by at least 2.5 percentage points. This was then tagged to the jobs argument. These claims were rebutted by government economists, and, for some time, the argument was dialled down.

Now, the same claims have been dusted off and dished out once again. There is an attempt to sound “sophisticated” by borrowing some of the tricks in the economists' bag. The key claim is that the gap between nominal and real GDP—reflecting inflation as measured by the GDP deflator—is low. The GDP deflator, as calculated from the data released on August 31, stood at 2.35 per cent. This, allegedly, stood in marked contrast to inflation as seen from the perspective of the Wholesale Price Index (WPI), which stood at 9 per cent. The latter is now being touted as the “real” inflation and not the GDP deflator. This is an argument of convenience. On earlier occasions when there was a divergence between WPI and Consumer Price Index (CPI), whichever index showed a higher value was picked as the measure of “real” inflation. This is a political argument, masquerading as an economic one.

There is, of course, an explanation for this alleged “discrepancy.” In a note on September 1, the Chief India Economist of HSBC Securities, Pranjul Bhandari, said that when input prices rise, but are not allowed to flow through to the output prices adequately, the nominal value added (output minus input) tends to be low. “In such cases, care has to be taken when moving from nominal to real value added. A low or negative deflator can help ensure that low nominal GVA (gross value added) led only by pass-through be haviour does not wrongly compress real GVA growth. We believe this is what resulted in the manufacturing deflator at -1.4% y-o-y, and the overall GDP deflator at a low 2.3% y-o-y.” There is no surprise at the absence of the pass-through effect as the government bore the cost of increased prices of oil and commodities. Bhandari said as much: “Important to note that all three characteristics of today's growth GDP print had the same underlying driver—shielding the consumer—whether it be government cutting GST/excise tax rates, raising subsidies, or corporates not passing through input cost increases.”

The Centre has shielded India's consumers, whether they are in rural areas or urban India. The cost has been high and has left the government with little room for spending more on capital expenditure in the time ahead. But what it has done in one stroke is to save the consumers from problems that originated outside India as well as keeping economic growth on a rapid pace. The frustration of the opposition and the opposition's favourite economists lies in the fact that India continues to shine.