Strong consumption keeps growth steady amid Iran war cost concerns

New Delhi: Strong domestic consumption has kept economic growth momentum steady in the June quarter, but the West Asia war has posed challenges, including elevated crude oil and fertiliser prices, senior government officials said Tuesday.

The economy grew 7.8% in the March quarter, accelerating fiscal 2026 growth to a higher-than-expected pace of 7.7%.

The government, the officials said, could take more steps this fiscal year to further bolster foreign direct investment (FDI) inflows. Gross FDI inflows touched a record $94.5 billion in FY26, although net inflows remained subdued due to repatriation and outward investments.


To gather additional resources, the government is ramping up efforts to beat its combined FY27 disinvestment and asset monetisation target of ₹80,000 crore, they said.

A flurry of offers for sale of shares over the past one month, including those of Coal India, NHPC and NLC, reflect this bid, they said. The strategic sale of IDBI Bank is also getting a renewed push.

The department of public enterprises is aggressively pushing for asset monetisation, they said.

Strong remittances momentum, recorded in the three months through March, continues in the June quarter, they said. The country recorded a current account surplus of 0.7% of GDP in the March quarter on strong services exports and remittances, and forex swaps conducted by the central bank.

PLI, gold imports

Some departments are working out fresh proposals on production-linked incentive (PLI) schemes, they said. Some are also stepping up efforts to curb non-essential imports and promote domestic manufacturing wherever feasible.

Gold imports are seeing a drop since last month's import duty hike. While the government is discouraging gold imports at this juncture, it doesn't intend to bring back the sovereign gold bond, an instrument aimed at luring investors away from physical holding of the precious metal. The Centre has refrained from raising resources through gold bonds in the past two years due to high costs of such instruments.

Capex outlay to be retained

The Centre, the officials said, will also maintain support to growth by keeping its FY27 capital expenditure at the budgeted level of ₹12.22 lakh crore, even as additional spending pressure rises to cushion vulnerable sections, especially farmers, against the impact from the West Asia conflict.

The fertiliser ministry has sought doubling of FY27 fertiliser subsidy bill from the budgeted ₹1.71 lakh crore due to a spurt in prices overseas, they said. Moreover, the government saw a potential revenue forgone of ₹1.23 lakh crore -including through cuts in excise duties on petrol and diesel-to enable oil marketing companies to retain pump prices in the initial 78 days of the West Asia crisis.

The decisions, aimed at shielding farmers and consumers, have weighed on government finances. However, there is no question of placing supplementary demands for grants for the current fiscal year in the upcoming monsoon session of Parliament, they said.

GST Council meet

The Goods and Services Tax Council is expected to deliberate on the next phase of reforms under the GST 2.0 agenda, including process reforms, in a meeting soon, the officials said.