India’s GDP Growth: Storm in the Economy Amidst Trump's Tariff Threats

US President Donald Trump imposed an additional 10 percent of an additional tariff on all countries in April. Despite this, India recorded the fastest growth in five quarters during April-June. India's GDP increased by 7.8% in the first quarter of FY 2025-26, beating the estimates. The growth rate was 6.5 percent in the same quarter last year. The world was shocked.

In the first quarter of FY 2025-26, real GDP was estimated at INR 47.89 lakh crore, compared to INR 44.42 lakh crore in the first quarter of FY 2024-25, which shows a growth rate of 7.8%. This growth came at a time when American president Donald Trump was threatening to increase tariffs on India from April 2025. 

Great growth in nominal GDP 

Nominal GDP saw a growth of 8.8% in the first quarter of FY 2025-26. Agriculture and allied sector growth rate (GVA) was 3.7 percent, compared to 1.5 percent in the same quarter last year. Manufacturing growth rate was 7.7 percent against 7.6 percent. Growth of trade, transport, communication services increased from 5.4 percent to 8.6 percent. Financial, real estate growth rate increased from 6.6 percent to 9.5 percent. The growth of mining was -3.1 percent, compared to 6.6 percent last year. The growth of utility services like electricity, gas also declined from 10.2 percent to 0.5 percent.

Softening in mining sector 

The mining sector saw a growth of -3.1%, while it was 0.5% in electricity, gas, water supply and other utility services sector. The actual private final consumption expenditure (PFCE) recorded a growth rate of 7.0 % during the first quarter of FY 2025-26, compared to 8.3 % during the same period in the last financial year.

Primary, secondary and tertiary sectors grew 2.8%, 7% and 9.3% respectively. The central government's capital expenditure increased by 52%, which led to increase in development activities. Economists believe that consumption could be supported by rationalising GST, interest rate cut by RBI and quarters coming from favourable monsoon. However, global trade remains at risk. The World Bank and International Monetary Costs (IMF) have estimated India's growth at 6.3% and 6.4% in FY 2025-26.

To maintain high GDP growth rate, India needs to motivate companies to transfer production to India by strengthening global supply chains and taking advantage of geopolitical stress, motivate people to use indigenous goods and services, which can lead to increase in demand in the domestic market and increase production as well as promote overall economic activity by improving business, hotel, transport, communication, financial, real estate and professional services. Both government and private sectors should emphasise investment in infrastructure, such as capital expenses

According to the IMF, India's economy will become the third largest economy in the coming years, leaving behind Germany. It is reported that despite the US’ heavy tariff, India's economy may surpass the US in PPP terms by 2038.

GDP growth figures are better than estimated. In such a situation, it can be said that the country's economy is doing better than expected.

Prof Mithilesh Kumar Sinha

Department of Economics

Nagaland University, Lumami