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India's economy grew far faster than expected in the July, September quarter, expanding at an annual rate of 8.2%, a performance driven by strong domestic demand and a rebound in manufacturing and services even as steep U.S. tariffs weighed on exports.
Official data released Friday showed GDP growth outpacing the 7.3% consensus forecast among economists polled by Reuters, and exceeding the 7.8% expansion recorded in the previous quarter. The latest figures bolster India's position as the fastest-growing major economy during a period of heightened trade tensions with Washington.
Economists said part of the strength reflected an unusually weak GDP deflator, as wholesale price inflation remained flat. "Underlying growth is likely to have been strong in any case," said Shivaan Tandon of Capital Economics, though he cautioned that sustaining this pace would be difficult. "Punitive U.S. tariffs, should they remain in place, will weigh on the external sector."
President Donald Trump's administration imposed 50% tariffs on key Indian exports in August, including textiles, gems and jewellery, levies now among the highest applied by the U.S. anywhere in the world. The move followed U.S. criticism of India's discounted oil purchases from Russia and has complicated efforts to finalise a bilateral trade deal.
Despite those pressures, India's festival-season quarter delivered broad-based domestic momentum. Private consumption, making up more than half of GDP, grew 7.9% year-on-year, up from 7% in the April–June period. Manufacturing output jumped 9.1%, while financial, real estate and professional services expanded 10.2%. Government spending contracted 2.7%, but rising construction activity and service-sector strength provided a cushion.
Nominal GDP rose 8.7%, slightly below the previous quarter's 8.8%. Still, the external sector showed clear strain: India's merchandise trade deficit widened to a record $41.68bn in October, in part because U.S.-bound shipments fell 9%.
Institutions tracking India's outlook have begun trimming forecasts. The IMF this week lowered its projection for the financial year beginning April 2026 to 6.2%, warning of "significant near-term risks" tied to prolonged U.S. trade barriers. Its baseline expects India's exports to fall and the trade deal to remain unresolved in the near term.
New Delhi remains optimistic. Rajesh Agarwal, a senior trade official, said Friday the government expects an agreement with Washington "before the end of 2025," noting that recent tax simplifications and sweeping new labour codes were designed to strengthen India's competitiveness.
