The chorus that has been heard for years regarding India's growth has had a familiar ring to it that the government is doing all the work and the private companies are holding the purse strings hostage. But what the numbers are indicating this week is that maybe wait is coming to an end. In the April to June quarter of FY27, India's economy grew 7.8%, exceeding the median of economists in a Reuters poll of 7.1% and easily topping the central bank's estimate of 7%. The underlying activity, which excludes taxes, was even hotter at 8.2%, the gross value added.

The headline number is not the differentiator; the differentiator is the composition of this print, which is quite distinct from the string of strong prints that India has come up with since the pandemic. The growth of private investment, which has been the missing ingredient in the growth story for the past decade, surged more than double, rising to around 12 per cent of the total growth rate from 5.8 per cent. Gross fixed capital formation in nominal terms grew at an all-time high of 34.3% of GDP, from 31.4% a year before, and is up by more than 20%.

Manufacturing activity was up 9.2%, construction was unchanged, and services activity increased 10%, led by financial, real estate and professional services, which jumped up 12.1%. But household spending has also remained strong, with personal consumption outpacing price increases for imported energy by staying above 7%.

The same applies to bank loans. By the end of the June quarter, credit growth had surged to 18.3%, the highest rate in over a decade, as the Reserve Bank's August bulletin revealed that credit growth had been healthy in both agriculture and industry and services sectors. The amount financed for industry and mid-sized businesses increased by about 30% to a new high.

A less conspicuous, but no less significant trend is also emerging in the retail and small-business lending markets, as a new generation of fintech lenders is expanding their offerings of personal and working capital loans into new categories of gig economy borrowers and first-time applicants. That’s a wider spread of access to credit, and that spread is quick, and that's one of the most important things to a durable investment cycle, aside from what happens in the boardroom, because it puts spending power in the hands of the consumers whose demand is the very reason for a factory expansion.

All of this did not take place in a favorable global climate. The Second Quarter was a very hectic period, when the crisis in West Asia hit crude oil prices, causing a chaotic reaction in currency and equity markets across the globe, amid Iran's involvement in the conflict. Economists noted it was a special time for both L&T Finance and India Ratings (IR): Growth at this level, at a time when energy costs were working against the growth. Retail inflation remained in check at 4.45% in July, while core inflation dropped to 4.15%, allowing the Reserve Bank to maintain a pro-active stance instead of a defensive one.

The rest of the world is very different. China grew 4.3% in the same quarter. The U.S. and the U.K. tied for 2.1%. Canada's performance was slightly above average at 1.5% while the performances of Germany, Italy, France and Japan remain at 1%, 0.8%, 0.5% and 0.5% respectively. Malaysia (6%) and Singapore (5.9%) are the two countries in Asia with the highest figures, followed by Indonesia (5.29%) and South Korea (3.7%). Foreign capital seems to be paying heed given the fastest gross inward foreign direct investment (FDI) of about $30.7 billion in the quarter, which is the highest such inflow in at least fifteen years and nearly 15% higher than the year before.

But Prime Minister Narendra Modi, who is not known for understating the importance of a good print, used the occasion to press his ongoing campaign for a self-reliant India and promote austerity in the consumption of discretionary items such as gold, foreign travel and destination weddings, which he said was a herculean feat given the numbers.

Economists for the most part are taking the bait, but as you'd expect with any given quarter of good news, adding qualifications. If this picks up the pace, then this might turn out to be the fourth successive year of growth exceeding 7%, Bank of Baroda's chief economist observed. India Ratings upped its forecast for the full year to more than 7% from 6.8% and Emkay Global economist stated that the print confirms a real cyclical upswing in corporate earnings and high-frequency indicators, and not a statistical base effect. Both SBI and Morgan Stanley have updated their FY27 forecasts to 7.3%.

The "caution" under the "optimism" is a serious one. India has suffered such an experience in the past. The country went through its most robust capex boom since liberalisation between 2003 and 2011, as gross capital formation reached its highest level since FY04/05, around 36.6% of GDP, due to cheap credit and corporate exuberance. It was an era that saw stalled projects, strained bank balance sheets and corporate deleveraging which continued to hold back growth long after the party was over, for nearly 10 years. That hangover isn't on the cards, and so that's why a few economists are looking to monetary policy as the deal breaker: If the Reserve Bank tightens prematurely, it will strangle a private investment recovery that, at best, is still in its fledgling and delicate phase.