- India’s GDP grew 7.8% in Q2, beating the 6.7% forecast.
- Manufacturing, services, and construction drove expansion.
- U.S. tariffs and a weak rupee pose risks to future growth.
India’s economy expanded at an annual rate of 7.8% in the April–June quarter, outperforming forecasts and reaffirming its position as the world’s fastest-growing major economy. The surge was driven by robust performance in manufacturing, construction, and services, even as concerns over U.S. tariffs and currency weakness loom.
Strong Sectoral Momentum
The manufacturing sector grew 7.7%, while services expanded 9.3% and construction rose 7.6%. These figures highlight India’s resilience despite a global slowdown and rising trade tensions. Economists had projected a 6.7% growth rate, making the print a significant upside surprise.
However, nominal GDP growth slowed to 8.8%, down from 10.8% in the previous quarter. Analysts caution that the “soft deflator,” which measures inflation’s impact on output, played a key role in boosting the real GDP figures. Still, corporate earnings have supported momentum, especially in manufacturing.
Tariff Pressures and Currency Weakness
India now faces fresh headwinds after the U.S. imposed 50% tariffs on Indian imports, a move expected to weigh on exports and foreign portfolio inflows. Following the announcement, the Indian rupee hit record lows, crossing 88 per U.S. dollar for the first time. Economists warn that these factors could soften growth in the second half of the year.
Policy Response and Growth Outlook
To cushion the impact, the Reserve Bank of India (RBI) cut its policy rate by 50 basis points to 5.5% in June and may consider further easing if growth falters. Despite external challenges, India is still projected to achieve around 7% growth in 2025, well above most global peers.
The IMF and World Bank forecast slightly lower growth at 6.3–6.4%, reflecting potential tariff shocks and currency volatility. Still, as economist Joe Maher of Capital Economics notes, India’s economy “remains on course to deliver world-beating growth” this year.
Also Read: India Set to Lead BRICS Growth Through 2026, Says Morgan Stanley
India’s better-than-expected 7.8% GDP growth demonstrates remarkable economic resilience. Yet with U.S. tariffs in force and the rupee under pressure, policymakers face a delicate balancing act to sustain momentum. The next quarters will be a critical test of whether India can maintain its growth trajectory amid global turbulence.
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