Decoding 7.8% GDP growth | Number Theory

Did the war’s disruption not have any impact on the Indian economy at all? What is the economic message in the fine print of the GDP data released on Monday?

India’s GDP grew at an impressive 7.8% in the quarter ending June 2026. This is despite a larger disruption from the war in West Asia in that period. What really explains this performance? Did the war’s disruption not have any impact on the Indian economy at all? What is the economic message in the fine print of the GDP data released on Monday? Here are four charts which answer these questions.

AFP file

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  The war did hurt the economy…

  When the National Statistics Office (NSO) released GDP data for the quarter ending March 2026 on June 5, growth was estimated to be 7.8%. When read with this number, the latest GDP print of 7.8% shows absolutely no impact of the war. However, the data released on Monday has updated the previous GDP numbers, which “have now incorporated the new series of Output PPI, Index of Industrial Production (IIP) with base year 2022-23 and updated administrative data from different sources”. This has led to the March quarter GDP growth number going to 8.6%. When compared with this, the latest GDP growth shows a slowdown by 80 basis points. One basis point is one-hundredth of a percentage point. To be sure, 7.8% is still a very good number and better than what the RBI and private analysts expected.
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  …And its fiscal implications can be seen in fall in excise duty and rise in fertilizer subsidies

  The crux of the matter is obvious in the headline GDP and Gross Value Added (GVA) numbers. At 7.8%, GDP growth is lagging the 8.2% growth in GVA in the June quarter. GDP is GVA plus Net Indirect Taxes (NIT), so the latter being ahead of former means a reduction in NIT. This was to be expected, as the government absorbed the fiscal impact of the higher petroleum and fertilizer prices because of the war and did not pass all of it to consumers. Union excise duty (primarily levied on petrol and diesel sales) and fertilizer subsidy spending numbers confirm this. Some of the excise duty loss could also be attributed to lower product sales. The higher expenditure burden and lower taxes follow the existing fiscal squeeze from reduced GST collections due to lower rates.
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  The tax-cut induced consumption boom has been acting as a buffer to growth

  The last budget announced a reduction in income tax rates in India. This was followed by the government announcing a rationalization of Goods and Services Tax (GST) rates which significantly reduced the cost of many goods and services. One-time purchases of many things, including automobiles, etc. followed. The new rates came into effect on 22 September 2025. Quarterly Private Final Consumption Growth (PFCE) shows a discernible spike from the December 2025 quarter onwards, although it is now beginning to tend towards normal. But this spike has helped overall growth at a time when external headwinds strengthened. Overall growth would be much lower without this cushion.
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  Consumer sentiment has fallen further after the June quarter

  The latest GDP numbers came a day after the US and Iran fired projectiles at each other after a brief lull in hostilities. An amicable resolution of the war and normal resumption of traffic through the Strait of Hormuz continues to remain elusive. The 2026 monsoon, after a long time, will be deficient and persisting El Nino conditions will weigh on the winter harvest as well. Consumers are not oblivious to these adverse developments and consumer sentiment, as seen in RBI’s rural and urban consumer confidence surveys, shows a falling trend since the outbreak of the war. To be sure, India can do little to influence the geopolitical headwinds to its economy. But it needs to be kept in mind that resilience cannot be an endless substitute for momentum. This is the crux of the Indian economy story right now: Sustaining high growth will take either easing of external headwinds or unlocking new tailwinds.