A resilient and surprise GDP
STORIES, ANALYSES, EXPERT VIEWS
The Indian economy has once again surprised everyone with its better-than-expected growth numbers in April-June 2025. GDP growth climbed to a five-quarter high of 7.8 per cent, slightly higher than the 7.4 per cent recorded in the preceding quarter. It is also 110 basis points above the Reserve Bank of India’s forecast of 6.5 per cent.
This growth rate cements India’s position as the fastest-growing large economy and underscores its economic resilience. It also strengthens the prospects of India emerging as the world’s fourth-largest economy by the end of the current financial year.
Sector-wise growth: Services sector activity, which expanded at a two-year high of 9.3 per cent despite global uncertainties, was the key contributor to this robust performance. The services boom reflects broad-based strength in trade, transport, finance, real estate, and even public administration, all of which registered significant gains.
Manufacturing too has staged a turnaround, growing at 7.7 per cent, while agriculture posted a steady 3.7 per cent. Although early rainfall in June hurt mining, utilities, and construction, overall GVA growth still stood at 7.6 per cent — a six-quarter high.
Buoyed by recent income-tax cuts and the government’s front-loading of investments, consumption grew by seven per cent. Proposals to restructure GST slabs and boost infrastructure investment could further support consumption.
Government retaining 6.3%-6.8% growth prediction for the year: Chief Economic Adviser V. Anantha Nageswaran has said that the government was retaining its 6.3%-6.8% growth prediction for the year. This means that, with 7.8% in Q1, the government expects growth to significantly slow down in the remaining three quarters, despite its statements about the limited impact of the U.S. tariffs.
Economy is on a strong wicket: Mythili Bhusnurmath (Consulting Editor, ET NOW) writes “the finance ministry and RBI's recent monthly reports also testify to the resilience of the economy-a fact acknowledged by S&P, which upgraded India's sovereign rating after an 18-year gap in August. The next quarter, too, is likely to be good, thanks to a bump-up due to the base effect (low growth rate of 5.8% in Q2 FY25), front-loading of shipments to beat the August 27 deadline for the imposition of 50% tariffs and higher consumer spending during this year's earlier-than-usual festival season.”
Impetus for reforms: However, "no sector is entirely immune from the impact of higher tariffs…” There will thus be some slowdown going forward. “At the same time, to the extent that a growth slowdown is best addressed through fiscal rather than monetary policy, this is an opportunity to pursue the more difficult reforms that successive governments eschewed for fear of upsetting the applecart.
“Labour and farm reforms fall in this category. The PM has promised an 'arsenal of reforms': GST reforms (by Diwali) and cash benefits for those joining the job market for the first time. Moves like rationalisation of GST-reducing from four to two rates-were, in any case, overdue. Despite pressure from Trump, the PM has gone out on a limb to protect farmers' interests. He could use that as an excuse to push ahead on farm reforms.”
