India’s economy grew at a faster than-expected annual rate of 7.8% in the quarter to the end of June, boosted by the manufacturing, construction and service sectors.
Annual manufacturing and services growth were at 7.7% and 9.3%, respectively, with the construction sector expanding by 7.6%.
While the overall gross domestic product print for the first quarter of the fiscal year 2026 came in higher than the 6.7% expansion forecast by economists in a Reuters poll, economists pointed to signs of a slowdown.
India’s nominal GDP — which does not account for inflation or deflation — fell to 8.8% over April-June, compared to 10.8% in the previous quarter.
“Nominal GDP growth is lower than previous quarters but because the deflator is so soft that the real GDP looks extremely strong,” says Anubhuti Sahay, head of Indian economic research at Standard Chartered.
A deflator measures the amount by which total output is reduced by inflation.
While the deflator has played a major role in making the real GDP growth look better, Sahay says on the manufacturing front corporate sector earnings have done well.
Outlook
The U.S.’ 50% tariffs on Indian imports came into effect on Wednesday, with most economists seeing the trade measure playing into softening growth for India’s economy in the coming quarters.
The Indian rupee fell to record lows on Friday, breaching the 88-per-dollar mark for the first time over concerns that steep U.S. tariffs could hurt growth and further hit portfolio flows.
Even so, “the surprise acceleration in India’s GDP growth in Q2 means that the economy is still on course to expand by a world-beating 7% this year, despite the upcoming hit from punitive US tariffs,” said Joe Maher, assistant economist at Capital Economics.
To curb the impact of US tariff’s India’s central bank cut policy rate to 5.5%, lowering it by 50 basis point, in June. While the central bank maintained the status quo in its August policy, there are indications that it may cut rates once again in the second half of the year if growth slows down.
The World Bank and International Monetary Fund project that the country’s economy will grow 6.3% and 6.4%, respectively, for the fiscal year 2026.
Source: CNBC