GDP growth comes in at 7.8% in Q1, slower than last quarter but quicker than last year

First, the most obvious and important fact. It is unambiguously good news for the Indian economy and underlines its resilience as far as facing temporary disruptions is concerned. The strong growth performance is rooted in private consumption demand, which is still enjoying multiple tailwinds such as GST and income tax relief announced last year, robust corporate profit momentum thanks to strong private demand, and most importantly, capable government intervention preventing a large supply crunch of petroleum products.

Having said that, it is still important that the West Asia war and its economic disruption end soon. If it does not end soon, the economic consequences will be more severe than what the June quarter numbers indicate.

Two, the inflationary implications of war seem to have delivered a double whammy for the fiscal situation. GDP growth in the June quarter is lower than its Gross Value Added (GVA) counterpart by 40 basis points. One basis point is one-hundredth of a percentage point. GDP is GVA plus net indirect taxes, and the former lagging the latter in growth entails a higher subsidy burden.