A higher-than-expected GDP growth of 7.8% in the April-June quarter has raised expectations that the Indian economy can continue to grow over 7% even in the face of the war in West Asia and higher energy prices. A more resilient economic activity than previously anticipated should also allow the Reserve Bank of India’s (RBI) rate setting panel to raise interest rates this year, economists said.

Economists at Morgan Stanley, State Bank of India, CareEdge Ratings, HDFC Bank, and India Ratings and Research all raised their growth projections for FY27 after the latest data. GDP growth is now seen between 7% and 7.5%, against 6.5%-7% earlier.

Data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday showed GDP growth slowed to 7.8% in April-June from 8.6% in the March quarter. Growth was, however, stronger than the RBI’s projection of 7% and the economists’ median estimate of 7.2%.

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Economic activity was driven by investments, the services sector, and higher exports. Private consumption also remained strong, though the expansion was slower than headline GDP growth.

Going forward, growth is expected to slow due to risks from geopolitical tensions, weather-related uncertainties, and higher inflation. The RBI projects GDP growth of 6.7% in FY27 with quarterly growth rates seen between 6.4% and 6.8% for the next three quarters.

But after the release of the April-June GDP data, economists believe GDP growth could be higher than 7% this year. “India’s economy is resilient despite supply-side risks. While growth could moderate in coming quarters, the strong start to FY27 raises upside risks to our 6.7% full-year forecast and should make monetary policy normalisation easier,” said ANZ Bank economists Dhiraj Nim and Sanjay Mathur.

The government has also revised growth estimates for the previous financial years. As per the revised prints, GDP growth was higher by 0.1 percentage points in all of the last three financial years. GDP growth was 7.8% in FY26, 7.2% in FY25, and 7.3% in FY24.

With war-led hit to economic activity contained and inflation on the rise, economists see the RBI’s Monetary Policy Committee (MPC) raising the repo rate by around 50 basis points in FY27 from the current 5.25%.

“We expect robust growth and elevated inflation to prompt RBI to deliver 50 bps of rate hike in 2HFY27, especially as real rates move towards negative zone and as we come closer to the Fed rate hiking cycle,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank. Economists at ANZ Bank see the first of two 25 basis points rate hikes in December.

A rate hike would somehow align with and vindicate RBI MPC minutes giving much needed clarity to markets, said Soumya Kanti Ghosh, State Bank of India Group Chief Economic Adviser.