In the January-March quarter, the economy expanded 4.1%, a performance that marks the low point of the year with officials holding out hope that a nascent recovery gathers pace in coming months.

“We expect rural demand to pick up in the coming months,” Chief Economic Advisor V. Anantha Nageswaran told reporters after the data was released. He added GDP growth should hold around 7% for the fiscal year to March 2023.

Asia’s third largest economy had just begun recovering from the pandemic-induced slump when a surge in omicron cases in January brought back some of the virus-related restrictions. The war in Ukraine, in February, further added to its woes, pushing up commodity prices and squeezing supplies further.

INDIA REACT: GDP Holds Up Amid Challenges, But Slowdown Looms

Earlier this month, elevated prices forced India’s central bank to hike rates by 40 basis-points in an off-cycle meeting. Governor Shaktikanta Das, who is due to next review monetary policy June 8, has signaled more interest rate increases to tame inflation, a move that may hurt demand further.

“The fact remains that the economy has recovered from the pandemic shock and the monetary policy committee’s guarded optimism on growth is validated,” said Gaurav Kapur, chief economist at IndusInd Bank. “Inflation concerns will continue to drive the future actions.”

Here’s more from the GDP data-

• Gross value added, a key input of GDP that strips out the impact of taxes on products, grew 3.9% in three months to March. Manufacturing output shrank 0.2% in January-March, while mining sector expanded 6.7%. Agriculture sector grew by 4.1%.
• For the full fiscal year, agriculture output expanded 3%, manufacturing sector grew 9.9%, and mining output increased 11.5%
• India’s budget deficit for last fiscal came at 6.7% of GDP, lower than the 6.9% goal, data released separately showed earlier today