India’s Economy Beats Growth Forecasts Despite Global Headwinds

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India’s economy expanded at a stronger-than-expected pace in the April–June quarter of fiscal 2026, posting annual growth of 7.8%. The uptick was fueled by robust performances in manufacturing, services, and construction, which grew 7.7%, 9.3%, and 7.6% respectively.

The figure outpaced the 6.7% growth forecast in a Reuters poll, offering a bright spot for Asia’s third-largest economy. However, economists caution that the momentum may be masking underlying signs of moderation. Nominal GDP growth, which excludes adjustments for inflation, slowed to 8.8%, down from 10.8% in the previous quarter. Analysts say a soft deflator, which measures inflation’s impact on output, has helped lift the real GDP numbers.

“Nominal GDP growth is lower than previous quarters but because the deflator is so soft that the real GDP looks extremely strong,” said Anubhuti Sahay, head of Indian economic research at Standard Chartered. Corporate earnings, particularly in manufacturing, have also provided a boost.

Looking ahead, India faces potential hurdles. The United States’ new 50% tariffs on Indian imports took effect Wednesday, raising concerns about slowing growth and capital flows. The rupee slipped to a record low of 88 per dollar on Friday as investors weighed the impact of the tariffs.

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Even so, some economists remain optimistic. “The surprise acceleration in India’s GDP growth in Q2 means that the economy is still on course to expand by a world-beating 7% this year,” said Joe Maher of Capital Economics.

To cushion the blow, the Reserve Bank of India cut its policy rate to 5.5% in June and may reduce rates further if growth weakens. Still, international lenders remain conservative: the World Bank projects India’s economy to grow 6.3% in FY2026, while the IMF forecasts 6.4%.