India’s economy surges ahead of full US tariff hit

[NEW DELHI] India’s economic growth accelerated to 8.2 per cent year on year in the July to September period, boosted by strong consumer spending and a front-loading of production ahead of local festivals and punitive US tariffs.

Economists polled by Reuters had forecast a 7.3 per cent expansion for the quarter ended September, during which the US imposed an additional 25 per cent punitive tariff on Indian exports, raising the total levy to 50 per cent.

The gross domestic product (GDP) grew by 7.8 per cent in the previous quarter.

Private consumer spending, which accounts for around 57 per cent of the GDP, rose 7.9 per cent year on year in July to September, compared with a 7 per cent increase a quarter earlier, the data released on Friday (Nov 28) showed.

To counter subdued external demand and mitigate the effects of US tariffs tied to its Russian oil purchases, India introduced tax cuts on mass consumption items, which kicked in at the end of September.

“The blockbuster GDP growth has been led by front-loading of exports,” said Garima Kapoor, economist, institutional equities, at Elara Securities in Mumbai.

“With today’s print, full-year financial year 2026 GDP growth will now see an upside and will be close to 7.5 per cent, way above the (central bank’s) and government’s estimate,” Kapoor said.

Government expects sustained growth

Economists said that stockpiling for the festive season as well as expedited exports ahead of the 50 per cent tariff deadline on Aug 27 might have contributed to the quarterly growth figures.

Manufacturing output rose 9.1 per cent in the quarter ended September from a year earlier, against a growth of 7.7 per cent from a quarter earlier. Construction increased 7.2 per cent year on year, from 7.6 per cent a quarter earlier.

Government spending decelerated, declining 2.7 per cent year on year in the three-month period, compared with a growth of 7.4 per cent in the previous quarter.

The government expects strong demand, firm public spending and easing inflation to help India weather trade uncertainties, and sustain growth throughout the rest of the 2025 to 2026 financial year.

Retail inflation in October slumped to a record low of 0.25 per cent in October, raising chances of an interest rate cut by the Reserve Bank of India (RBI) in its next review in December.

Nominal growth, which includes inflation, was 8.7 per cent in July to September, down from 8.8 per cent in the quarter earlier, weighing on corporate profits and tax collection.

More rate cuts possible

Gross value added (GVA), considered by economists as a more accurate measure of underlying economic activity, grew 8.1 per cent year on year in July to September, from 7.6 per cent in the three months ended June.

The GVA excludes indirect taxes and government subsidy payouts, which tend to be volatile.

The agriculture sector grew 3.5 per cent year on year, compared with an increase of 3.7 per cent a quarter earlier.

Domestic tax cuts and the RBI’s cumulative rate cuts of 100 basis points this year will help boost private investment and economic growth, said the central bank.

The central bank estimates that the economy will grow 6.8 per cent in the financial year ending March.

Earlier this week, RBI governor Sanjay Malhotra said that there was scope to further reduce interest rates, ahead of the monetary policy meeting scheduled in December. REUTERS