Indian tourists and Kashmiris walk near the clock tower (Ghanta Ghar) in Srinagar, Jammu and Kashmir, on May 28, 2025.
Firdous Nazir | Nurphoto | Getty Images
India’s economy expanded at a faster-than-expected annual rate of 7.4% in the quarter ended in March, despite mounting global economic uncertainty.
The print for the gross domestic product of the fourth quarter of the government’s fiscal year 2025 came in sharply higher than the 6.7% growth forecast by economists in a Reuters poll.
That marked the strongest quarterly growth in the fiscal year of 2025, according to government data released Friday.
India’s economy expanded by 6.5% in the full fiscal 2025 year, in line with the government’s February estimate.
The growth outlook in Asia’s third-largest economy has remained relatively robust, thanks to strong domestic consumption and a relatively lower dependence on exports, cushioning the blow from U.S. President Donald Trump’s erratic trade policy.
Trump last month slapped so called “reciprocal” tariffs of 26% on goods imported from India as part of broader U.S. trade measures, only to lower them to 10% for 90 days ending in July to allow for deal negotiations.
The White House has been resorting to protectionist trade policies to address trade imbalances. India ran a nearly $46 billion surplus with the U.S. in 2024, according to government data.
New Delhi could be next in line to clinch a deal with the U.S., following Washington’s agreements with China and the U.K. Trump reportedly said earlier this month that India had offered zero tariffs on all U.S. imports.
Monetary policy
India’s economy is benefitting from the Reserve Bank of India’s steps to relax monetary policies. The central bank cut interest rates last month for a second consecutive time to 6% and shifted its stance to accommodative in a bid to bolster growth. The central bank is expected to deliver another rate cut in June.
“Falling inflation, downside risks to growth to prompt another cut to repo rate next week, said Shilan Shah, deputy chief emerging markets economist at Capital Economics, forecasting the repo rate will fall to 5.5% in the current easing cycle.
Market concerns had mounted over tensions emerging between India and neighboring Pakistan, which carried out military action earlier this month. The ceasefire in the contested region of Kashmir is “fragile and tensions could easily build again,” which in turn may hold back investment and consumption, Shah said.
That said, India’s growth story could still hold, in part helped by the improving consumer demand in rural areas. Consumption contributed over half of India’s economy, with rural areas accounting for nearly 40% of overall consumer goods sales in the first quarter of 2025, data from market research firm NielsenIQ showed.
The International Monetary Fund projects India’s economy will reach $4.187 trillion in 2025, modestly overtaking Japan’s $4.186 trillion and potentially making it the world’s fourth-largest economy.
“India was always going to overtake Japan – and also Germany – given its positive demographics and scope for continued productivity gains,” said Shah, adding that “it isn’t a stretch to think that, by 2040, India’s economy could be the size of Germany’s and Japan’s [economy] combined.”
