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New Delhi: Despite high US tariffs and other global headwinds, the Indian economy performed better than expected in 2025, beating all major projections on Gross Domestic Product (GDP) growth and inflation, and achieved a significant milestone to become the fourth largest economy, surpassing Japan.
The country’s GDP expanded by 7.4% in the January-March period, the first quarter of the 2025 calendar year. In the April-June quarter, the GDP growth rose to 7.8%. An even bigger surprise came in the July-September quarter, when the GDP expanded by 8.2%, surpassing most estimates by a wide margin.
The average growth in the first half of FY2025-26 stood at 8%. The Economic Survey tabled in Parliament in January-end 2025 has pegged the 2025-26 GDP growth in the range of 6.3-6.8%. The first two quarter numbers far-exceed this projection. This was despite the imposition of an unexpected 50% tariff on the majority of Indian goods by the Trump administration, with effect from August 27.
Analysts expect the GDP growth momentum to soften in the second half of the current fiscal. According to ICRA, the GDP growth is likely to decline to around 7% in the second half of 2025-26, from 8% in the first half.
“Growth outcomes have panned out better than expectations in 2025. This has benefitted from sizable policy stimulus, including income tax relief GST rate rationalisation, 125 bps policy rate cuts and liquidity support. A sharp dip in inflation eased pressure on household budgets and an above-normal monsoon boosted crop output,” said Aditi Nayar, Chief Economist at ICRA.
Inflation has softened progressively, declining from 4.26% in January 2025, to 0.71% in November 2025, as per the latest official data.
2026 momentum
Most institutions expect India’s GDP growth momentum to soften in 2026, but will remain the world’s fastest growing major economy.
According to the World Bank, India’s GDP is projected to grow by 6.5% in 2026. Moody’s has pegged it at 6.4% in 2026 and 6.5% in 2027. The IMF has pegged India’s GDP growth at 6.6% for 2025, and 6.2% for 2026. The OECD forecasts 6.7% growth in 2025, and 6.2% in 2026; S&P anticipates growth of 6.5% in the current fiscal and 6.7% in the next; the Asian Development Bank has lifted its 2025 forecast to 7.2%; and Fitch has raised its FY26 projection to 7.4% on stronger consumer demand.
According to Nayar, the global headwinds would pose challenges to the Indian economy in 2026. “We expect the GDP growth to accelerate to 7.4% in FY2026, from 6.5% in FY2025, albeit with a slower growth in H2 vis-à-vis H1. Thereafter, growth is expected to range between 6% and 7% in FY2027, with the upper end of the range likely to materialise if the trade deal is struck before the next fiscal begins and new constraints are not imposed on the services trade front,” she added.