In spite of a series of harsh US tariffs, India’s economy expanded by an impressive 8.2 % last quarter, surpassing expectations and achieving its highest growth rate in a year and a half. The key uncertainty is whether this momentum will continue once Washington’s trade actions fully take effect.
In August, Washington increased tariffs on Indian exports to a steep 50 percent, raising concerns about significant setbacks for export manufacturers. However, the economy accelerated, partly due to manufacturers expediting shipments before the tariff deadlines, a boost further supported by robust domestic demand.
Experts caution that economic growth could slow in the upcoming quarters if ambiguity surrounding a US trade pact continues. India is among the limited number of major economies that have not yet concluded an agreement with Washington.
HDFC economist Sakshi Gupta noted that the full effect of tariffs has yet to emerge as the initial front-loading influence diminishes. She also expressed uncertainty about whether the surge in demand during the festive season will persist, particularly since urban employment trends remain cautious.
In October, exports declined by almost 12 percent compared to the same month last year, with shipments to the United States falling 8.6 percent. The IMF forecasts that India’s growth could slow to 6.2 percent next year if high tariffs persist. According to Bloomberg, India aims to finalize a preliminary deal with Washington to lower tariffs by next month.
Economists had anticipated a smaller growth rate of between 7 and 7.3 percent for the July to September quarter. However, India achieved an 8.2 percent increase, surpassing the 7.8 percent growth in the prior quarter and significantly higher than the 5.6 percent recorded in the same period last year. Prime Minister Narendra Modi praised the results as highly encouraging, attributing the performance to the administration’s pro-growth strategies and reforms.
Encouraged by recent figures, Chief Economic Advisor V. Anantha Nageswaran increased the government’s annual growth forecast to 7 percent, up from the previous estimate of 6.3 to 6.8 percent. Shumita Deveshwar, chief economist at GlobalData TS Lombard, stated that India is expected to continue as the fastest-growing major economy globally.
Manufacturing was a key contributor, growing by 9.1 percent and recording its quickest pace in more than a year. This surge largely stemmed from companies accelerating shipments ahead of impending tariff deadlines. Economists compare the US tariffs to a 'starter’s pistol,' spurring businesses to ramp up production. Garima Kapoor, an economist at Elara Capital, characterized the quarter’s performance as 'blockbuster,' driven by early export activity.
Local demand was a significant contributor, with late September tax reductions on common goods boosting festival-season purchases and leading to nearly 8% growth in private consumption, spanning groceries to holiday travel, while manufacturers increased stock ahead of the celebrations. The services sector also expanded strongly, with financial, real estate, and professional services rising by about 10%, and transport and hospitality recovering due to revived consumer interest. Earlier in the year, a full percentage point cut in central bank rates further fueled this momentum.
Sujan Hajra from Anand Rathi stated that the figures indicate India’s economy is supported by widespread strength. However, certain economists advised prudence, pointing out potential statistical anomalies that might have boosted the GDP numbers. Kunal Kundu of Societe Generale highlighted ongoing data-related issues, noting a significant gap between the GDP results and trends suggested by various earlier economic indicators.
The IMF has recently assigned a 'C' grade to India's GDP statistics, pointing to notable methodological flaws that impede accurate monitoring of the nation's economic performance. This grade is the second lowest on the scale and underscores problems like the use of an outdated base year from 2011-12. Economists note that one mitigating factor is India’s large domestic market, which serves as a buffer against economic shocks. The country’s economy is predominantly driven by consumer demand rather than exports.
Experts contend that recent reforms—ranging from digitisation to infrastructure growth and improved logistics—are beginning to yield tangible benefits. Gurmeet Chadha of Complete Circle Capital noted that these developments have strengthened the economy’s resilience against external disruptions. Meanwhile, Maadhavi Arora of Emkay Global credited part of the unexpected growth to favourable statistical factors and anticipates that some of these influences will carry into the third quarter, supporting full-year expansion at comfortably above seven percent.
The quarter experienced swift growth amid notably subdued price pressures. In October, consumer inflation fell to 0.25 percent, the lowest level seen in years. This development leaves the central bank weighing whether to reduce interest rates at its upcoming policy meeting or to observe further economic trends before acting. Hajra from Anand Rathi suggests that the current low-inflation climate provides the RBI with scope for a 0.25 percentage point rate cut in December, while some contend the economy is performing strongly without additional monetary easing.
With growth surpassing 8 percent, the likelihood of a rate cut has clearly diminished, according to Aditi Nayar, chief economist at ICRA in Gurugram.