Stay informed with free updates
Simply sign up to the Global Economy myFT Digest — delivered directly to your inbox.
India’s economy expanded much faster than expected in the latest quarter, buoyed by robust consumer spending and growth in manufacturing and services that outweighed the hit to exports from US tariffs.
GDP rose 8.2 per cent year-on-year in the July to September quarter, according to official data released on Friday. That overshot a 7.3 per cent forecast among economists polled by Reuters and beat the 7.8 per cent rate in the previous quarter.
The latest GDP reading, which cements India’s place as the fastest-growing major economy, landed during a tense period in commercial ties with the US as the two countries struggle to finalise a trade deal.
“The strength in real GDP growth owes partly to an unusually weak GDP deflator — wholesale price inflation stagnated last quarter — but underlying growth is likely to have been strong in any case,” said Shivaan Tandon at Capital Economics.
He cautioned, however, that “this pace of growth is very difficult to sustain. Punitive US tariffs, should they remain in place, will weigh on the external sector”.
In August, US President Donald Trump lashed out at India’s oil purchases from Russia and imposed levies totalling 50 per cent on many Indian goods including key exports such as textiles, gems and jewellery.
Those tariffs are among the highest in the world and more than double those imposed by the US on south-east Asian rivals.
During the latest quarter, which saw the start of India’s months-long festival season, private consumer spending — which accounts for more than half of India’s GDP — grew 7.9 per cent year-on-year, compared with a 7 per cent rise between April and June.
Government spending contracted 2.7 per cent, but manufacturing output advanced 9.1 per cent year-on-year in the three months ending September, while financial, real estate and professional services expanded 10.2 per cent.
As trade negotiations between New Delhi and Washington drag on, India’s merchandise trade deficit widened to a record $41.68bn last month, in part due to a 9 per cent year-on-year decline in US-bound shipments.
Institutions that track India’s economy have recently begun to trim their expectations for the year ahead. Earlier this week the IMF lowered India’s GDP forecast to 6.2 per cent for the financial year starting in April, citing the effect of higher US trade barriers.
“There are significant near-term risks to the economic outlook,” the IMF’s executive board wrote in a report on India.
India remains optimistic that a deal with the US will soon be struck. Speaking on Friday in New Delhi, Rajesh Agarwal, one of India’s top trade officials, said the government expected an agreement to be signed before the end of 2025.
Since Trump’s tariffs took hold, Prime Minister Narendra Modi’s government has implemented a number of economic reforms that have won praise from business leaders and investors.
Those include a simplification of national goods and services taxes, as well as the sudden enactment this month of four new labour codes that consolidated a previous web of complex rules and made it easier for employers to dismiss staff.
