Moneycontrol Pro Weekender | Bulletproof Growth: India’s Titanium economy stuns with 7.8 percent GDP growth

The economy has brushed off the uncertainty generated by Trump’s threats

Dear Reader,

India's economy shattered expectations in the April-June 2025 quarter, roaring ahead with a remarkable 7.8 percent real GDP growth. Gross Value Added growth wasn’t far behind, at 7.6 percent. It easily beat expectations of growth for the quarter, which ranged from 6.5 percent (from the RBI) to around 6.8 percent. It’s even higher than the 7.4 percent growth notched up in the March 2025 quarter, marking a dramatic acceleration.

That strong momentum will be a great comfort for businesses and policymakers, as the Indian economy faces 50 percent tariffs from the US from this month. It provides a plump cushion for the economy to absorb that shock. The numbers, released by the National Statistics Office, underscore India's economic resilience and momentum as the nation continues to outpace global growth trajectories, driven by surging domestic demand and robust capital formation.

Let’s start with consumption. Despite all the talk about urban consumption being tepid, private final consumption expenditure (PFCE) has grown by 7 percent year-on-year (y-o-y), higher than the 5.95 percent growth in the March quarter. Clearly, the fall in inflation has buoyed consumption, as have the income tax cuts. Private consumption contributed 4 percentage points to the 7.8 percent growth in real GDP.

Even the worries about the lack of investment growth seem to have been off the mark. Gross fixed capital formation moved up a substantial 7.8 percent y-o-y.

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Nor is the jump in GDP growth on account of higher exports to beat the tariff deadline. True, export growth in real terms in the June quarter was 6.3 percent compared to 3.9 percent in the March quarter. But import growth in the June quarter was quite strong, and as a result, net exports were negative, while it was positive in the March quarter. That indicates that front-running tariffs is not the reason for the strong GDP growth and factors such as robust consumption and investment are far more important.

Coming to the sectors, manufacturing growth has been very strong at 7.7 percent in the June quarter, compared to 4.9 percent in the previous quarter. The electricity and mining sectors, however, put up a disappointing show.

The star of the quarter was, as usual, the services sector, which contributed more than two-thirds of y-o-y GVA growth. All cylinders of the services sector fired during the quarter. The ‘financial services, real estate and professional services’ sector grew an extraordinary 9.5 percent, the ‘trade, hotels, transport etc’ segment was up 8.6 percent and the ‘public administration, defence and other services’ segment grew 9.8 percent.

Construction, however, lost some momentum, growing at 7.6 percent, compared to 10.8 percent in the March quarter. That doesn’t augur well for employment growth during the quarter, and we had written about it here. The saving grace was the growth in ‘trade, hotels, transport etc’ sector, another potent source of jobs for the masses. Growth in the agricultural sector wasn’t too good, at 3.7 percent.

One reason for the strong real growth was the low deflator, as inflation went down. For instance, inflation as measured by the GDP deflator was 1 percent y-o-y in the June quarter, compared to 3.6 percent in the March quarter. Note that nominal GDP growth was 8.8 percent in the June quarter, compared to 10.8 percent in the March quarter.

Perhaps it is this slowing down of growth in nominal terms that led to analysts being disappointed with corporate earnings growth in the June quarter, which are quite at variance with the upbeat real GDP data. The GVA numbers for manufacturing are also out of whack with the much lower IIP numbers. On the other hand, they tally well with the improvement in the Purchasing Managers Index during the quarter.

Some analysts have suggested that it’s logical to expect a surge of exports to the US to beat the tariff deadline and the low export growth figure in the GDP estimates is because exports to other countries have been tepid. Indeed, foreign trade data show a sharp jump in exports to the US both in the March and June 2025 quarters.

But this data is too good for nit-picking. The finance ministry’s monthly economic review for June 2025 got it right. It said, “India’s economy sustained its growth momentum in the first quarter of FY26, supported by robust domestic demand, resilient business and services activity, and a favourable onset of the southwest monsoon. High-frequency indicators reflected broad-based strength, registering strong year-on-year growth. While the manufacturing and construction sectors continued to expand, the services sector anchored the overall economic growth in Q1 of FY26.” But there’s no getting away from the fact that the 7.8 percent GDP growth notched up in Q1 has been far above expectations.

True, this is a picture of the economy before the tariffs came into effect. But it shows that the economy has brushed off the uncertainty generated by Trump’s threats. It suggests that, even if the impact of the tariffs shaves off half a percentage point from growth, it could still be above 7 percent, no mean feat in these unsettled times.

Note also that there are additional factors that should support growth in the months ahead, such as a good harvest, the festive season, reduction in GST rates, low inflation, lower interest rates and perhaps fiscal support for the industries worst hit by the tariffs. Taken together, these factors, along with the strong GDP print for the June quarter, should dispel the gloom in the markets.

Perhaps the best way to describe the Q1 FY26 GDP growth are these lines from the song ‘Titanium’, by David Guetta:

‘I′m bulletproof, nothing to lose

Fire away, fire away

Ricochet, you take your aim

Fire away, fire away

You shoot me down, but I won't fall

I am titanium

You shoot me down, but I won't fall

I am titanium.’

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

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