India GDP growth in September quarter tops forecasts

India’s economy grew faster than expectations in the September quarter, reinforcing its status as the world’s fastest expanding major economy even as a new wave of steep US tariffs threatens to cool exports over the coming year.

Real gross domestic product (GDP) rose 8.2% in the July-September quarter from a year ago, up from 7.8% in April-June and well above the market estimates of around 7.3-7.4%, government data released on Friday showed.

The print is the strongest in six quarters and comes in the first quarter after US President Donald Trump’s 50% tariffs on a wide swathe of Indian goods took effect in late August, a move economists said will weigh on manufacturing and trade in coming quarters.

For the first half of FY26, GDP growth averaged 8%, compared with 6.1% a year ago, while gross value added (GVA) rose 7.9% versus 6%.

The headline numbers underline how far domestic demand and public investment are offsetting external headwinds, at least for now.

A closer look at sectoral data suggests the expansion is broad based but still uneven.

Manufacturing output grew 9.1% year-on-year, a sharp improvement on last year’s 4.7%, helped by lower input costs and strong internal demand.

Services such as finance, real estate and professional services rose 10.2%, while trade, hotels, transport and communication grew 7.4%.

Construction, which has been buoyed by public capex and housing, expanded 7.2%. Agriculture, forestry and fishing grew 3.5%, a steady but more modest pace that reflects monsoon variability and soft rural incomes.

On the demand side, private consumption continued to do much of the heavy lifting and investment spending stayed firm, even as government consumption was pared back.

Some economists noted that real growth benefited from an unusually low deflator.

Nominal GDP rose 8.7% in the quarter, only slightly faster than real output, a sign that subdued inflation and softer wholesale prices amplified the real growth reading.

Several analysts have already flagged the wedge between nominal and real growth as a reason to interpret the 8.2% figure with some caution.

Even so, the data will add to pressure on the Reserve Bank of India (RBI) as it weighs how quickly to ease policy after an extended pause. Headline inflation has eased back toward the 4% target, and markets have been pricing in a possible 25 basis points cut in coming meetings. One basis point is one-hundredth of a percentage point.

The central bank currently projects full year FY26 growth at about 6.8%, which now looks conservative unless growth slows sharply in the second half.

External risks have clearly risen. The 50% US tariff on most Indian exports to its largest single market is expected to shave off some growth, particularly in labor intensive sectors such as textiles, engineering goods and some consumer products.

Multilateral agencies have said the impact should be manageable but not negligible. The International Monetary Fund this week forecast India’s GDP to expand 6.6% in FY26, arguing that domestic tax reforms, especially around the goods and services tax (GST), will cushion some of the drag from tariffs but warning that prolonged trade frictions could dampen investment and productivity.

The World Bank, in its latest South Asia update, also lifted its FY26 forecast to 6.5% from 6.3% on the back of resilient household consumption, recovering rural demand and GST-related efficiency gains, while cautioning that US trade barriers and global uncertainty could slow the region in 2026.

“Earlier projections in flagship IMF and World Bank reports had India growing in the mid-6% range through FY26 and FY27, keeping it comfortably ahead of other large economies.

Credit rating agencies are broadly in the same range. S&P Global Ratings sees India growing 6.5% in FY26 and 6.7% in FY27, saying robust domestic demand, tax cuts and expected rate reductions will support consumption despite elevated tariffs.

Moody’s is more upbeat on the calendar year, projecting 7% GDP growth in 2025 and positioning India as the fastest growing major emerging market, though it expects some moderation to around 6.4% in 2026.

A Fitch Solutions unit, BMI, this week raised its FY26 forecast to 6.5% after the latest data.

Set against that backdrop, the 8.2% quarterly print looks like an upside surprise relative to the steady state growth that most institutions expect in the mid sixes. Part of the gap reflects temporary factors such as base effects, the low deflator and front loaded exports ahead of tariff changes.

The more durable story lies in domestic drivers that have been in place for several years. Public capital expenditure has continued at a high clip, especially on roads, railways and urban infrastructure. Corporate balance sheets are healthier than a decade ago and banks have seen a clean up in non performing loans, allowing credit growth to stay solid.

At the same time, there are signs of strain beneath the headline numbers. Rural wage growth has been patchy, and agriculture’s slower expansion contrasts with booming high end services.

A World Bank analysis earlier this year pointed to moderating investment and lingering weakness in parts of industry even as overall GDP remained strong, underscoring the importance of broadening the recovery beyond urban and formal sectors.

The tariff shock adds another layer of uncertainty. IMF staff and several private economists note that India’s reliance on domestic demand and a relatively closed capital account give it more insulation than some peers, but warn that prolonged trade frictions could weigh on exports of goods and modern services, as well as on sentiment around foreign direct investment.

The latest release keeps India firmly in pole position among large economies by growth and gives the government some room to argue that tax reforms, targeted subsidies and infrastructure spending are paying off despite global headwinds.