Stellar Q3 Growth Cushions India Against Tariff Shock
By Reuters | 28 Nov, 2025

The fastest growth in 18 months boosts Prime Minister Narendra Modi's standing and provides a stronger bargaining hand in negotiating a US trade deal.

India's economy grew at its fastest pace in 18 months in the July-September period, lifted by robust consumer spending and front-loading of production ahead of local festivals and punitive U.S. tariffs.

Strong growth in the world's fifth largest economy could boost Prime Minister Narendra Modi's standing domestically and give him room to negotiate a trade deal with the U.S. after Washington imposed tariffs of up to 50% on Indian goods imports, hurting sectors such as textiles, gems and jewellery, and food items.

India's economy grew at a faster-than-expected pace of 8.2% in the quarter ended September against a forecast of 7.3% in a Reuters poll and 7.8% expansion in the previous quarter, data released on Friday showed.

"The 8.2% GDP growth in Q2 of 2025/26 is very encouraging. It reflects the impact of pro-growth policies and reforms," Modi said on X, adding the government will continue to advance reforms. 

The Indian government has cut consumer taxes on hundreds of items and implemented long-delayed labour reforms in the last three months as it tries to keep the domestic economy strong in the face of global uncertainties.

"Now we can say comfortably that the full year growth will be either 7% or to the north of 7%," the government's chief economic advisor V. Anantha Nageswaran said at a press conference after the data was released.

He had earlier projected growth of 6.3% to 6.8%.

STRONG CONSUMER SPENDING 

Private consumer spending, which accounts for around 57% of GDP, rose 7.9% year-on-year in July-September, compared with a 7% rise a quarter ago, the data showed.

To counter subdued external demand and mitigate the effects of U.S. 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 FY26 GDP growth will now see an upside and will be close to 7.5%, way above the (central bank's) and government's estimate," Kapoor said.

GOVERNMENT EXPECTS SUSTAINED GROWTH

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

Manufacturing output rose 9.1% in the quarter ending in September from a year earlier against growth of 7.7% a quarter ago, while construction expanded 7.2% year-on-year from 7.6% a quarter ago.

The government expects strong demand, firm public spending and easing inflation to help India weather trade uncertainties and sustain growth through the rest of the 2025/26 financial year.

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

Nominal growth, which includes inflation, was 8.7% in July-September as against 8.8% in the quarter earlier, weighing on corporate profits and tax collection.

RATE CUTS IN THE BALANCE

Gross value added, considered by economists as a more accurate measure of underlying economic activity, grew 8.1% year-on-year in July-September from 7.6% in the three months to June. GVA excludes indirect taxes and government subsidy payouts, which tend to be volatile.

The agriculture sector grew 3.5% year-on-year compared with an increase of 3.7% a quarter ago.

The stronger-than-expected growth could dim expectations for a cut in interest rates at the central bank's rate-setting panel meeting next Friday. The benchmark 10-year bond yield jumped 4 basis points to 6.54% after the data.

Low inflation leaves room for a rate cut, said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. "We retain our expectations of 25bp of rate cut in the upcoming policy as inflation trajectory remains benign," she said.

RBI governor Sanjay Malhotra said last week that there is room to lower rates, but the timing will depend on rate-setting panel's judgment.

The central bank has already cut rates by 100 basis points this year.

(Reporting by Nikunj Ohri, Manoj Kumar and Sarita Chaganti Singh; Editing by Mrigank Dhaniwala, Jacqueline Wong and Toby Chopra)