Explained | How India's economy defied growth estimates despite US tariffs

New Delhi: India's economic growth accelerated to 8.2% year-on-year in the July-September period despite punitive US tariffs. The economic acceleration is being attributed strong consumer spending and a front-loading of production ahead of local festivals.

Economists polled by Reuters had forecast a 7.3% expansion for the quarter ended September, during which the US imposed an additional 25% punitive tariff on Indian exports, raising the total levy to 50%.

The gross domestic product grew by 7.8% in the previous quarter. Private consumer spending, which accounts for around 57% of GDP, rose 7.9% year-on-year in July-September, compared with a 7% rise a quarter ago, the data released on Friday showed.

To counter subdued external demand and mitigate the effects of US tariffs tied to its Russian oil purchases, India introduced tax cuts on mass consumption items which kicked in at the end of September.

"The blockbuster GDP growth has been led by front-loading of exports," said Garima Kapoor, economist, institutional equities, at Elara Securities in Mumbai.

"With today's print, full-year FY26 GDP growth will now see an upside and will be close to 7.5%, way above the (central bank's) and government's estimate," Kapoor said.

Government expects sustained growth

Economists said stockpiling for the festive season as well as expedited exports ahead of the 50% tariff deadline on August 27 might have contributed to the quarterly growth figures.

Manufacturing output rose 9.1% in the quarter ending in September from a year earlier against growth of 7.7% a quarter ago, while construction expanded 7.2% year-on-year from 7.6% a quarter ago. Government spending decelerated, declining 2.7% year-on-year in the three-month period compared with growth of 7.4% in the previous quarter. The government expects strong demand, firm public spending and easing inflation to help India weather trade uncertainties and sustain growth through the rest of the 2025/26 financial year. Retail inflation in October slumped to a record low of 0.25% in October, raising chances of an interest rate cut by the Reserve Bank of India in its next review in December.

Nominal growth, which includes inflation, was 8.7% in July-September as against 8.8% in the quarter earlier, weighing on corporate profits and tax collection.

More rate cuts possible

Gross value added, considered by economists as a more accurate measure of underlying economic activity, grew 8.1% year-on-year in July-September from 7.6% in the three months to June. GVA excludes indirect taxes and government subsidy payouts, which tend to be volatile.

The agriculture sector grew 3.5% year-on-year compared with an increase of 3.7% a quarter ago.

Domestic tax cuts and the RBI's cumulative rate cuts of 100 basis points this year will help boost private investment and economic growth, according to the central bank. The central bank estimates the economy will grow 6.8% in the financial year ending March.

Earlier this week, RBI Governor Sanjay Malhotra said there was scope to further reduce interest rates, ahead of the monetary policy meeting scheduled in December.