India's economy is facing a slowdown in the April-June quarter, with weak urban demand and slow private investment hampering growth, according to a Reuters poll of economists. The impact of higher U.S. tariffs on Indian goods, which doubled to 50%, is expected to hurt key exports like textiles, footwear, chemicals, and food items in the upcoming quarters.
Despite these challenges, India's GDP is predicted to have grown 6.7% year-on-year in the first quarter of the fiscal year 2025/26, down from 7.4% in the previous quarter. This growth rate, although lower, still places India among the fastest-growing major economies globally.
The central bank remains optimistic about the full-year growth, expecting it to be close to 6.5% with minimal effects from the heightened tariffs. Governor Sanjay Malhotra stated that the impact of the tariffs would be limited. The Ministry of Statistics is set to release the official GDP data for April-June on Friday.
Factors such as a good monsoon, strong government spending, easing food inflation, and early U.S. shipments likely supported growth in the quarter. However, nominal GDP growth is expected to have softened to 8%, a decline from the average of almost 11% over the past eight quarters.
Lower nominal growth, driven by low inflation, might affect government tax revenues and corporate profits. This is evident in the annual sales growth of private manufacturing firms, which eased to 5.3% in the June quarter.
Some economists are concerned that prolonged high U.S. tariffs could further dent India's growth in the coming quarters by limiting exports and reducing the country's attractiveness as a manufacturing destination. HSBC's chief economist, Pranjul Bhandari, mentioned that a year-long retention of the tariffs could result in a 0.7 percentage point drop in GDP growth.
To counter the impact of tariffs, the government has planned tax cuts and support for affected sectors. The finance ministry's monthly economic report emphasized the importance of planned goods and services tax cuts to ease household costs and boost demand. Additionally, S&P Global's recent ratings upgrade could attract foreign capital, lower borrowing costs, and support growth in the country.
