Indian economy remains world’s fastest growing despite US tariffs

New Delhi: India’s economy grew at a higher-than-expected 8.2 per cent – the fastest pace in six quarters – in July-September, as front-loading of production ahead of GST rates cut boosted consumption that helped offset the impact of steep US tariffs.

The 8.2 per cent gross domestic product (GDP) growth, which follows a 7.8 per cent expansion in the preceding April-June quarter, helped India retain the title of the world’s fastest growing major economy, according to official data released on Friday.

The GDP growth came ahead of the festive season consumption boost on the back of the implementation of a significant reduction in the goods and services tax (GST). It, however, does not factor in the full quarter impact of an additional 25 per cent punitive tariff on Indian exports that took the total levy to 50 per cent in August.

The expansion, which was more than China’s 4.8 per cent, was driven by higher public investments, services demand, industrial output and firm consumption, besides statistical effects of a low base (the economy grew at a below-average 5.6 per cent in the same quarter last fiscal).

A low GDP deflator also lent some buoyancy. Inflation based on both the Consumer Price Index and the Wholesale Price Index was lower in the second quarter compared to the first. Lower food inflation stoked discretionary spending.

Prime Minister Narendra Modi termed the GDP growth as “very encouraging.”

“It reflects the impact of our pro-growth policies and reforms. It also reflects the hard work and enterprise of our people. Our government will continue to advance reforms and strengthen Ease of Living for every citizen,” he said in a post on X.

Following the GST rate cut announcement by Prime Minister Narendra Modi in his Independence Day address, factories stepped up their output to meet the festival season demand. The GST rate cut came into effect on September 22.

Private consumer spending, which accounts for around 57 per cent of GDP, rose 7.9 per cent in July-September – the second quarter of the current 2025-26 fiscal – compared to a 7 per cent rise a quarter ago, according to data released by the National Statistics Office (NSO).

Manufacturing output rose 9.1 per cent against a growth of 7.7 per cent in the preceding quarter and 7.6 per cent in the year-ago period, while construction expanded 7.2 per cent from 7.6 per cent in the previous quarter. Government spending decelerated, declining 2.7 per cent in Q2, compared to a growth of 7.4 per cent in the previous quarter.

Finance Minister Nirmala Sitharaman said the GDP print shows that reforms and fiscal consolidation drove the Indian economy’s robust growth and momentum.

“Various high-frequency indicators also point to continued economic momentum and broad-based consumption growth,” she said in a social media post. “The GDP estimates released today show the robust economic growth and momentum of the Indian economy. With a Real GDP growth rate of 8.2 per cent for Q2 – FY 2025-26 (July-September), India is the world’s fastest-growing major economy.”

The growth, she said, has been driven by sustained fiscal consolidation, targeted public investment, and various reforms that have strengthened productivity and improved ease of doing business.

The government is committed to sustaining this growth momentum and advancing reforms that support long-term economic growth, she added.

Commenting on the GDP numbers, India’s Chief Economic Adviser V Anantha Nageswaran said the Indian economy is expected to cross USD 4 trillion in the current fiscal year, given the current rate of growth.

India’s GDP was USD 3.9 trillion in FY25, which ended March 31.

As India’s economy recorded an 8 per cent growth rate in the first half of the current financial year, he said, the full-year outlook for GDP growth rate is now 7 per cent, or north of 7 per cent.

The third quarter (October-December) of the current fiscal year has commenced on a sound footing, he pointed out.

Further, the rural demand remains resilient while urban demand is gaining traction post-GST rate cut.

While the real GDP growth at 8.2 per cent in the second quarter exceeded expectations, the nominal print was modest at 8.7 per cent.

The difference between real and nominal is the smallest since the third quarter of fiscal 2020.

The third quarter is expected to continue benefiting from a low base and deflator. Also, aiding is the GST rate cut that bolstered private consumption, complementing reduced income tax and interest rates cuts because of the RBI repo rate reductions.

Dharmakirti Joshi, Chief Economist, Crisil Ltd, said the GDP series is getting revised to a new base of 2022-23 from 2011-12, which will capture the economy better, but can lead to deviation from current estimates.

DBS Bank economist Radhika Rao said the impact of deflator and low base was also reflected in the sub-9 per cent nominal GDP, which is running below the budgeted pace.

The RBI, she said, faces a challenging act at the December rate review, with the mix of a strong growth print and record low inflation.

“We expect an emphasis on forward-looking growth guidance and a high real rate buffer due to weak inflation, to justify a move to lower rates further.”

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said the single-digit nominal GDP growth continues to signal tepid underlying activity.

“Despite the high real GDP growth, we retain our expectations of a 25 bps rate cut in the upcoming policy as the inflation trajectory remains benign.”

Vedanta Chairman Anil Agarwal said the GDP growth shows India’s economy is “amazingly resilient”.

“At a time of global headwinds, a growth rate of over 8 per cent is very impressive. Domestic demand and deregulation can take it to double digits. We are continuously strengthening our position as the world’s fastest-growing major economy,” he said.

The Ministry of Statistics and Programme Implementation is currently in the process of revising the base year of National Accounts from 2011-12 (Current Series) to 2022-23 (New Series).

Therefore, the quarterly estimates will undergo revisions due to changes in the methodology of estimation at the current and constant prices, incorporation of updated and new data sources, and updation of the annual benchmark, among others, it said.

“Users should take these factors into consideration while interpreting the subsequent revised estimates. The next quarterly GDP estimates based on the New Series will be released on February 27, 2026,” it added.