Between July and September this year, India’s GDP expanded at the sharpest clip in seven quarters. The latest quarterly growth of 8.2 percent beat RBI’s estimate of 7 percent and surpassed consensus projections that had tempered expectations citing American tariffs. The performance reaffirmed India’s strong underlying economic momentum amid global uncertainties. Though India is the only major economy yet to strike a trade deal with the US, it retained the tag of being the fastest-growing major economy notwithstanding the steep levies, which have compelled foreign investors to pull out a record $16 billion from Indian equities so far in 2025. The most comforting data point from Friday’s numbers is that with consumption, investments, and manufacturing witnessing a revival, India’s growth engines are now more broad-based. Until now, one component or another was pulling in less than the desired output; but the second quarter saw a much-needed departure.
The 9.1 percent uptick in manufacturing, followed by financial and professional services at 10.2 percent, and construction at 7.4 percent were the key growth drivers. However, government spending contracted, while rural demand retained its level. Higher agricultural output, steady farm incomes, and improving rural labour conditions further strengthened private consumption to 7.9 percent. Higher consumption is a sign of healthy aggregate demand and reinforces confidence that India is firmly on a high-growth trajectory. While private consumption is likely to turn in a good performance in the third quarter too, there is uncertainty regarding investment, which rose 7.3 percent in Q2. Rising consumption should lead to more investment, but the global headwinds may hold back its growth.
That’s why the growth projections for the next two quarters are pegged below 7 percent each. However, if consumption and investment hold on to the rates seen in Q2, GDP growth for the full fiscal will see a notable upside. That’s not enough to power India’s ambitious target of being a $5-trillion economy by 2027-28. As the IMF noted, it will take longer due to slower nominal GDP growth and sharper rupee depreciation. The currency has fallen 4.26 percent against the US dollar so far this year, while lower inflation has slowed nominal GDP growth. However, the economy will likely cross the $4-trillion mark this year and overtake Japan as the fourth-largest economy.