Thriving amid chaos: India’s GDP uptick is good news but the hard part comes now

This suggests a stronger growth impulse than forecasters may have pencilled in. It also ups confidence in the economy’s resilience. Although we face trade headwinds from here on, real GDP growth of about 6.5% this fiscal year might still be on  the cards. 

A key role was played by a surge in spending by the government, as visible in an enlarged budget gap and in sharp contrast with last year’s election-strapped first quarter. April to June 2025 also stood out for its nominal growth—in current rather than constant 2011-12 prices—estimate of 8.8%. Real growth only a percentage point shy of nominal implies a low ‘GDP deflator’ and reflects benign inflation at both the wholesale and retail levels. 

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Consumption and investment both held up in real terms, overall. However, declines were observed on a few indicators: the quarter’s output of electricity, for example, and the sale of vehicles. If business revenues seemed to lack buoyancy well beyond the auto sector, we can attribute it to an extraordinary phase of price stability; a sharp reduction in the ‘money illusion’ makes sales-graph inclines look much less dramatic. 

While inflation could creep up in the second half of 2025-26, the Centre would need to moderate its outlays to keep central finances in control. Suspense stalks how the economy will perform in the quarters ahead as new US tariffs on Indian exports steepen to 50%. Key dollar-earning sectors have been spared, but enough shipments will now get priced out of the US market to slow our GDP growth. 

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As employers in tariff-hit sectors like apparel and textiles, gems and  jewellery and fisheries begin to report cancelled or lost US orders, layoffs loom that might run into scary numbers even if New Delhi rolls out relief packages. 

This blow may turn out to be a blip, pending a deal with the White House, but private forecasts include a scenario of half a percentage point shaven off this fiscal year’s rate of growth. Bearable or not, it calls for a rethink of India’s game-plan to emerge as the world’s next mega-factory in a context reset by today’s global flux and dicey prospects of a patch-up with America.

For now, our economy has the support of this year’s special fiscal stimulus. Aimed at spurring domestic retail purchases, it took the shape of lighter income tax in the Centre’s  budget and may be followed by GST easing in time for the festive season. 

Since a simplified GST regime can set off a ripple of benefits, it would count as a good start to a broader reform thrust aimed at a more efficient economy full of competitive businesses that exude export optimism. Levels of exposure to rivalry would be key, and if handled with care, hard nuts like farm reforms could be tackled again.

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An upgrade of Indian statistics is due as well. Our inflation gauges need to be updated for changes since 2011-12, for instance, with both value deflators and volume extrapolators adjusted appropriately to compute the real output of various sectors. 

India’s economy seems more resilient than it gets credit for,  but even so, policy must craft more than just  a cushion against a trade hit. To thrive amid chaos, we need a competitive edge.