India's third-quarter economic growth exceeds expectations at 8.2%, unaffected by tariff impact.

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India's economy shows unexpected resilience under the shadow of high US tariffs.

On November 28, the latest data released by India's statistics department showed that India's annualized economic growth rate in the third quarter reached 8.2%, exceeding market expectations and setting the fastest growth rate in six quarters, highlighting its growth momentum under external pressure.

This growth rate not only surpasses the previous quarter’s 7.8% but also significantly exceeds economists’ median forecast of 7.3%. In August this year, the US officially imposed a 50% tariff on Indian goods, and this quarter's economic data is the first to reflect the tariff's impact.

The accelerated growth is mainly attributed to the recovery of manufacturing and construction activities, as well as strengthened domestic consumption. To counter the tariff shock, the Indian government launched large-scale goods and services tax reduction measures on September 22 to stimulate domestic demand. Private consumption accounts for nearly 60% of GDP and saw a surge last quarter.

After the data was released, India’s 10-year government bond yield rose 4 basis points to 6.50%. However, several experts warn that as trade negotiations with the US remain unresolved and the effect of festival-related consumption stimulus fades, economic growth momentum may slow down in the coming quarters.

Manufacturing and Services Drive Growth

The data show that, apart from consumption, the strong economic performance was mainly led by the manufacturing sector, which grew 9.1% year-on-year. A government statement said that financial, real estate, and professional services "maintained considerable growth rates" during July to September, reaching 10.2%.

India’s nominal GDP—which does not exclude inflation or deflation factors—grew 8.7% in the quarter ending September, slightly lower than the 8.8% in the previous quarter. The previous quarter’s real growth rate of 7.8% was unexpectedly boosted by a lower deflator index, which measures how inflation affects the total output value.

Private consumption saw a significant jump this quarter, mainly thanks to the government's stimulus measures. According to Axis Bank’s chief economist Neelkanth Mishra, domestic consumption in the September quarter was "somewhat suppressed" before the goods and services tax reduction plan, accumulating momentum for a subsequent rebound.

In October, demand rebounded sharply, with car and gold sales hitting record highs. The reduction in goods and services tax and previous personal income tax cuts boosted people’s disposable income.

Facing the shock of the 50% US tariff which came into effect in August, the Indian government quickly launched countermeasures. On September 22, the government announced a comprehensive reduction in goods and services tax to stimulate domestic consumption and offset the impact of tariffs.

According to CCTV News, on August 25 local time, the US Department of Homeland Security issued a notice intending to impose a 50% tariff on Indian goods starting from midnight August 27.

It is worth noting that despite significant effects of policy stimulus, India’s merchandise trade deficit still hit a new high due to weak exports and increased gold imports. This highlights the substantial impact of tariffs on India-US trade.

GlobalData.TS Lombard chief economist Shumita Deveshwar said:

"This is an outcome far exceeding expectations, driven by manufacturing and services. However, this momentum may weaken in the next few quarters."

Future Growth May Slow Down

However, analysts point out that as trade negotiations with the US remain unresolved, exports have already begun to slow down, and the festival consumption boom driven by the goods and services tax reduction is unlikely to maintain the same growth pace.

A report released by the International Monetary Fund on Wednesday stated that assuming the US-India trade agreement is delayed for the long term, India's real GDP is expected to grow 6.6% in fiscal year 2026, and then slow to 6.2% in fiscal year 2027.

The organization predicts that India's merchandise exports will decline by 5.8% to $416 billion in fiscal year 2026, while merchandise imports are expected to grow by 2.4% to $746 billion.

"Despite external headwinds, strong domestic conditions are expected to support robust growth," the International Monetary Fund said in a statement. Its data also show that India will become a $5 trillion economy by fiscal year 2029.

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