India's economy grew 7.8% year-on-year in the April-June quarter, the fastest pace in five quarters and well above economists' forecasts, as manufacturing, construction and services delivered solid gains. But the surge came just as U.S. President Donald Trump's administration imposed a 50% tariff on Indian imports, stoking fears of weaker growth in the months ahead.
Government data released Friday showed gross domestic product expanded more strongly than the 6.7% forecast in a Reuters poll, extending India's position as one of the fastest-growing major economies. Gross value added, which strips out volatile tax and subsidy effects, rose 7.6%, up from 6.8% in the previous quarter.
Manufacturing output advanced 7.7% year-on-year, compared with 4.8% in the previous three months, while services expanded 9.3% and construction grew 7.6%. Agriculture slowed to 3.7%, down from 5.4%.
Consumer spending, which makes up nearly 57% of GDP, increased 7% in the quarter, driven by rural demand, durable goods and farm equipment purchases. Government expenditure rose 7.4% after contracting in the prior quarter, while capital investment climbed 7.8%.
"Nominal GDP growth is lower than previous quarters but because the deflator is so soft that the real GDP looks extremely strong," said Anubhuti Sahay, head of Indian economic research at Standard Chartered.
India's nominal GDP growth slowed to 8.8% in April-June, down from 10.8% in the prior quarter, reflecting inflationary adjustments. Economists warn the slowdown in nominal growth could weigh on corporate earnings and equity benchmarks.
The acceleration comes as Trump's tariffs on Indian imports-announced in April and doubled this week to as high as 50%-take hold. The levies, aimed at punishing India's continued purchases of Russian oil, put New Delhi in line with Brazil as the hardest-hit U.S. trading partners.
"Despite the reciprocal penal tariff, we are maintaining our growth range (of 6.3%-6.8%) for full year," India's Chief Economic Adviser V. Anantha Nageswaran said at a press conference following the release. He cautioned that "there will be some negative shock on manufacturing numbers for July-September quarter, but it is difficult to make a precise estimate."
Joe Maher, assistant economist at Capital Economics, said 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."
