NEW DELHI, Aug 29 (Reuters) – India’s economy expanded at a faster-than-expected pace between April and June, registering a 7.8% year-on-year increase in gross domestic product, surpassing the 6.7% growth forecast by analysts in a Reuters survey. This acceleration comes even as new U.S. trade measures introduce uncertainty for future economic performance.\n\nThe United States recently doubled tariffs on certain Indian exports, raising them to as high as 50%, citing India’s continued purchase of Russian crude oil. This places India alongside Brazil in facing the highest U.S. import duties among trading partners. Analysts suggest this could negatively affect Indian shipments of textiles, leather products, and chemical goods.\n\nGross value added (GVA), a metric that strips out indirect taxes and subsidies to reflect core economic activity, climbed to 7.6% in the second quarter, up from 6.8% in the prior quarter. This solid domestic momentum positions India among the world’s most rapidly expanding large economies, despite a dimming external outlook following the tariff escalation.\n\nCapital Economics described the GDP surge as a “surprise acceleration,” maintaining that India is still on track to achieve around 7% growth for the full fiscal year, even with the looming drag from American trade policy.\n\nIndia’s Chief Economic Adviser, V. Anantha Nageswaran, stated that the government continues to project annual growth within a 6.3% to 6.8% range, despite the retaliatory measures.\n\nPrivate consumption, which accounts for roughly 57% of GDP, grew 7.0% compared to 6% in the previous quarter. This uptick was driven by stronger rural demand and sustained interest in durable goods and agricultural machinery. Government expenditure also rebounded, rising 7.4% after a 1.8% contraction earlier, while capital spending increased by 7.8%.\n\nManufacturing output advanced 7.7% year-on-year, a notable improvement from 4.8% in the prior quarter. Construction activity grew 7.6%, moderating from the previous 10.8% surge. Agriculture, meanwhile, expanded at a slower 3.7%, down from 5.4% in the preceding quarters.\n\nHowever, economists caution that the full impact of U.S. tariffs may dampen growth in upcoming quarters. The 50% duty could disrupt export flows, potentially triggering ripple effects across employment, wages, and household spending, according to Madhavi Arora of Emkay Financial Services. Export industry groups estimate that nearly 55% of India’s $87 billion in goods sent to the U.S. could be affected, giving rivals like Vietnam, Bangladesh, and China a competitive edge.\n\nSome forecasts suggest prolonged trade barriers might reduce India’s annual growth by 0.6 to 0.8 percentage points, undermining its position as an alternative manufacturing destination to China.\n\nNageswaran noted that the additional U.S. levies might be temporary. Still, he acknowledged a likely negative impact on manufacturing data for the July-September period, though precise quantification remains uncertain.\n\nWhile real GDP remains robust, nominal GDP growth—factoring in inflation—slowed to 8.8% in the April-June period, down from an average of nearly 11% over the past eight quarters. This moderation could pressure corporate earnings and major stock benchmarks.\n\nThe Indian rupee hit an all-time low of 88.30 against the U.S. dollar, and equity markets were poised for a second consecutive monthly decline as investor sentiment weakened.\n— news from Reuters\n\n— News Original —\nIndia’s economy unexpectedly picks up steam, but Trump’s tariff effect looms\n\nNEW DELHI, Aug 29 (Reuters) – India ‘s economy unexpectedly gathered steam in the April-June quarter, defying expectations of slower growth even as a sharp rise in U.S. tariffs on Indian imports threatens to weigh on business activity in coming quarters. \n\nThe United States doubled tariffs on Indian goods to as high as 50% on Wednesday over India ‘s continuing imports of Russian oil. That ushered in the most punishing rate among U.S. trading partners alongside Brazil and economists say the move could hurt exports including textiles, leather goods and chemicals. \n\nSign up here. \n\nThis was well above the 6.7% expansion economists had forecast in a Reuters poll. \n\nGross value added (GVA), seen as a more accurate measure of underlying economic activity, grew 7.6% in the three months to June, from 6.8% in the previous quarter. GVA excludes indirect taxes and government subsidy payouts, which tend to be volatile. \n\nAt this pace, India remains one of the fastest-growing major economies, despite an increasingly cloudy export outlook after U.S. President Donald Trump ‘s tariff hike. \n\nThe “surprise acceleration” in GDP growth in the April-June quarter 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”, Capital Economics said in a note. \n\n”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 after the data release. \n\nCONSUMER SPENDING RISES \n\nPrivate consumer spending, which makes up about 57% of GDP, rose 7.0% year-on-year in April-June, compared with 6% in the previous quarter, as rural spending increased, and demand for durables and farm equipment such as tractors remained firm. \n\nPrime Minister Narendra Modi ‘s government has pledged support for sectors hit by U.S. tariffs and has said it would propose tax cuts to spur domestic demand. It had earlier cut income taxes starting April this year. \n\n”Private consumption is supported by tax relief, rate cuts, crops sowing, though households may defer discretionary purchases until proposed consumption tax cuts take effect in the festive season,” said Aditi Nayar, chief economist at ICRA ratings agency. \n\nGovernment spending rose 7.4% in the three months through June compared to a fall of 1.8% in the previous quarter, the data showed. \n\nCapital expenditure increased 7.8% in the quarter, though some private firms were seen holding investments amid global uncertainty following Washington ‘s tariff hikes since April. \n\nManufacturing output rose 7.7% year-on-year in April-June, the first quarter of India ‘s fiscal year, against 4.8% in the previous quarter, while construction expanded 7.6%, easing from 10.8%. \n\nThe agriculture sector expanded 3.7%, compared to 5.4% in the previous three quarters. \n\nU.S. TARIFFS WEIGH ON GROWTH \n\nEconomists warned growth could slow sharply when the effects of the higher U.S. import duties kick in. \n\nIndian government sources have said New Delhi hoped the U.S. would review the extra 25% tariff imposed this week, which took to 50% the rate charged on a range of Indian imports. But as yet there are no indications of renewed talks between the two sides. \n\nThe 50% U.S. tariff could hit exports and have a “domino effect on employment, wages and private consumption,” further dampening private investment and growth, said Madhavi Arora, chief economist at Mumbai-headquartered Emkay Financial Services. \n\nExporter groups estimate the tariffs could affect nearly 55% of India ‘s $87 billion in merchandise exports to the U.S., while benefiting competitors such as Vietnam, Bangladesh and China. \n\nSome economists warn that prolonged U.S. tariffs could shave 0.6 to 0.8 percentage point off India ‘s growth over a year, as weaker exports dent its appeal as an alternative manufacturing hub to China. \n\nAdditional tariffs imposed by the U.S. on India could be “short lived”, Chief Economic Adviser Nageswaran said. \n\n”There will be some negative shock on manufacturing numbers for July-September quarter, but it is difficult to make a precise estimate,” Nageswaran said. \n\nWhile real GDP growth is holding up, nominal GDP growth, which factors in inflation, slowed to 8.8% in April-June quarter after averaging nearly 11% over the previous eight quarters. \n\nLower nominal growth is likely to weigh on corporate profits and benchmark equity indices. \n\nIndia ‘s rupee fell to a record low of 88.30 to the dollar on Friday as U.S. tariffs bite, while its benchmark stock indexes looked set for a second straight month of losses. \n\nReporting by Manoj Kumar and Nikunj Ohri in New Delhi Editing by Kim Coghill, Frances Kerry and Susan Fenton
