India's economy has displayed remarkable resilience, posting an impressive 8.2% GDP growth in the second quarter of fiscal year 2025-26. This figure, released by the National Statistics Office (NSO), significantly surpasses the 5.6% growth recorded in the same period last year and exceeds the expectations of most economists, who had predicted a 7.3% increase. The robust growth rate, the highest in six quarters, reaffirms India's position as the world's fastest-growing major economy.
Several factors have contributed to this strong performance. The Goods and Services Tax (GST) cuts implemented by the government have demonstrably boosted consumer demand. The GST Council's new two-slab structure of 5% and 18%, effective September 22, has reduced rates on several household goods. This has led to increased sales, particularly in the electronics and consumer goods sectors, and reduced prices for essential items. This in turn has strengthened high-frequency indicators, including e-way bill generation, automobile sales, UPI transactions, and tractor sales, indicating strengthening demand across rural and urban markets. The Ministry of Finance has acknowledged the measurable boost to consumption from the GST rate rationalization.
The growth has been broad-based, with the secondary and tertiary sectors playing a significant role. Manufacturing expanded by 9.1%, construction grew by 7.2%, and the broader secondary sector clocked growth of 8.1%. The tertiary sector, which includes services, demonstrated a growth of 9.2%. Sectors like financial and real estate services have also shown strong growth. This diversified growth underscores the overall strength and stability of the Indian economy.
However, India faces external challenges, most notably the 50% tariffs imposed by the United States on Indian exports. These tariffs, which came into full effect in August 2025, target key sectors such as textiles, gems, jewelry, and leather. The tariffs are a combination of a 10% baseline duty, a 25% reciprocal tariff, and an additional 25% tariff. The initial tariffs were imposed in response to India's continued imports of Russian oil.
The International Monetary Fund (IMF) has projected that these tariffs could reduce India's GDP growth by 0.4% in FY2025-26 and 0.3% in the following year. However, the Indian government has contested this assessment, arguing that the IMF's estimation of the growth impact is overstated. The government also believes that the tariffs will not remain in place indefinitely and that India can mitigate the impact by developing other export markets and through new trade agreements. The IMF has noted that the reform of the GST is expected to help cushion the adverse impact of the tariffs.
Despite the US tariffs, several international agencies have maintained a positive outlook on India's economic growth. The Reserve Bank of India (RBI) has revised its FY2025-26 GDP forecast upward from 6.5% to 6.8%. The World Bank projects 6.5% growth in 2026, while Moody's expects India to lead growth among G20 economies through 2026 with a growth rate of 7.0% in 2025 and 6.4% in 2026. The OECD has raised its growth forecasts to 6.7% for 2025 and 6.2% for 2026.
Looking ahead, India's economic outlook remains positive, with strong domestic demand and improving policy transmission placing the economy on a stable growth path. While the US tariffs pose a significant challenge, the Indian government is actively pursuing strategies to diversify its export markets and enhance its economic resilience. The continued implementation of economic reforms and a focus on strengthening domestic demand are expected to support India's growth momentum in the coming years.
