GDP surges in the third quarter of FY 2025

GDP reading: India's GDP grew 8.2% in annual terms in July–September (Q3 FY 2025), following a 7.8% expansion in the prior quarter. July–September's growth was the sharpest since January–March 2024 and yet again overshot market expectations by a significant margin. The reading confirms that India remains the world’s fastest-growing large economy.

Drivers: Compared with the previous quarter's data, readings in July–September improved for private consumption (+7.9% in annual terms vs +7.0% in April–June) and imports of goods and services (+12.8% vs +10.9% in April–June). In contrast, readings softened for government consumption (-2.7% vs +7.4% in April–June), fixed investment (+7.3% vs +7.8% in April–June) and exports of goods and services (+5.6% vs +6.3% in April–June). The improvement in GDP growth was in part due to two statistical quirks. Firstly, a low base effect: The economy expanded at a weak pace in the same period last year. Secondly, the statistical office has had difficulties properly adjusting for price changes, in turn inflating the figure for real GDP growth. Nonetheless, make no mistake: The July–September print still suggests that the Indian economy is performing strongly. Favorable monsoons have boosted the incomes of rural households. This supported private consumption in July–September in conjunction with recent cuts to interest rates by the Central Bank, a factor which will have also aided fixed investment. Meanwhile, export growth remained resilient despite U.S. tariffs, possibly supported by some frontloading of shipments.

GDP outlook: July–September’s blockbuster result has led our panelists to raise their forecasts for India’s GDP growth this fiscal year (April 2025–March 2026). All in all, India is projected to remain the fastest-growing large economy, expanding at a rate that’s slightly quicker than in the prior fiscal year. Tailwinds include recent strong monsoons, lower inflation and interest rates, and the government’s recent cuts to income tax. Moreover, the government should ramp up spending in the coming quarters as it prioritizes infrastructure development. That said, the strong FY 2025 result will be due to a robust H1, with GDP growth set to ease from October 2025 through March 2026 on a higher base effect and weakness in exports and fixed investment due to 50% U.S. tariffs. The key risk to the outlook is India-U.S. trade talks, which are ongoing.

Panelist insight: EIU analysts noted: “Based on the stronger than expected data in the first half of 2025/26, we will revise up our forecast for the year to above 7%, from our previous expectation of 6.8%.” Nomura’s Aurodeep Nandi and Sonal Varma added: “The outcome for a US-India trade deal remains a big uncertainty. Despite positive noise from both camps, the deal is yet to be signed. We expect the deal will be signed soon, and tariffs set closer to ~20%. The mix of lower inflation, lagged transmission of easy macro policies, and the focus on structural reforms like GST rationalisation and de-cluttering of labour laws should broadly support growth.”

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