India’s economy is expected to grow at a steady pace in the June quarter, supported by an early monsoon and accelerated exports to the US before new tariffs took effect.
According to Bloomberg, gross domestic product is estimated to have grown by 6.7% between April and June.
While this would mark a slowdown from the 7.4% growth seen in the January–March quarter, it is still above the 6.5% growth recorded a year earlier. Economists caution, however, that the 50% US tariffs imposed this week could weigh on key industries in the months ahead.
Exports front-loaded before US tariffs
The US remains India’s largest export market, with shipments worth $87.4 billion in 2024, though exports contribute only 2% to India’s total GDP.
President Donald Trump’s temporary pause on reciprocal tariffs allowed Indian exporters to fast-track shipments ahead of the deadline, particularly in sectors such as textiles, footwear, and jewellery.
This “front-loading” boosted growth in the first quarter, but analysts expect the impact of the new 50% tariffs to surface after September, likely pulling growth lower.
Citigroup estimates the tariffs could shave 0.6–0.8 percentage points off annual GDP growth, while Yes Bank flagged labour-intensive export industries as being most vulnerable.
Bank of America economists also expect to see the effect in weak mining output, lower power demand, and slower auto sales during the coming quarter.
Domestic demand remains critical
India’s economy is primarily driven by local consumption, which makes up about 60% of GDP. An early onset of monsoons supported sowing activity and improved rural demand during the quarter.
The Narendra Modi government has announced tax changes aimed at boosting consumption, with a streamlined Goods and Services Tax expected to lower prices for households and small businesses.
IDFC First Bank estimates that the GST cut could lift nominal GDP growth by 0.6 percentage points over the next 12 months.
Meanwhile, the Reserve Bank of India has lowered interest rates by 100 basis points since February, in a move expected to support lending, business activity, and consumer spending.
Growth to slow in second half
While Nomura Holdings estimates GDP growth at 6.9% for April–June, its analysts project that growth could slow to below 6% in the second half of the fiscal year starting in October. The main drag will come from US tariffs combined with weaker global demand.
The divergence between GDP and gross value added, another measure of economic output, may also become more visible, with higher taxes and lower subsidies weighing on businesses.
Economists highlight that while fiscal and monetary measures may provide some support, export-dependent sectors face persistent risks in the months ahead.
Government response and risks ahead
To cushion the effects of trade headwinds, the government is focusing on measures to stimulate local demand and provide relief for businesses.
Analysts note that while external demand is under pressure, the Indian economy has some room for resilience due to its reliance on domestic consumption.
Still, the 50% tariff on Indian exports to the US, the highest rate imposed on any Asian nation, presents a significant challenge. The full effect of these measures is expected to emerge after September, when exporters can no longer rely on front-loading to offset the impact.
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