Govt support, benign inflation helped in Q1: Sonal Varma, Chief Economist, India & Asia (excl. Japan), Nomura

India’s growth has remained remarkably resilient, with domestic demand—particularly consumption—providing an important anchor. Despite geopolitical disruptions and higher crude oil prices, activity has held up well. A key support has been the relatively limited pass-through of higher global energy prices to retail fuel prices, alongside still-benign underlying inflation, which has protected household purchasing power. At the same time, government supply-side management and continued public capital expenditure have supported broader activity. These factors have translated into strong consumption momentum so far in FY27.

However, we expect growth momentum to moderate as we move into the second half of the fiscal year. First, firms have so far absorbed part of the rise in input costs through lower margins. Some delayed passthrough to consumers could eventually weigh on real purchasing power. Higher food prices will also squeeze real disposable incomes. Second, deficient rainfall and weaker kharif sowing pose risks to agricultural incomes and, consequently, rural consumption demand. Third, some consolidation in government expenditure in H2FY27, particularly capex, could reduce an important support to activity.

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We therefore expect GDP growth to moderate from around 7.3% in H1FY27 to 6.7% in H2, still delivering a solid 7% for FY27 overall.