India’s Economy Defies Global Pressures

Notwithstanding 50 per cent US tariffs and inconclusive trade talks that have compelled foreign investors to withdraw USD 16 billion from Indian equities, the country’s economy has recorded 8.2 per cent growth during the July–September quarter, its sharpest rise in the last seven quarters. This has been largely driven by the manufacturing sector, which grew by 9.1 per cent in the same period after remaining stagnant for a long time. Along with manufacturing, both consumption and investments have also shown an upward trend, defying all odds.

It may be recalled that soon after India earned the displeasure of the US for disregarding its call to stop oil imports from Russia, several quarters predicted an extraordinary economic decline. With falling markets, hampered foreign trade and other emerging pressures, many anticipated a growth rate below seven per cent—not only for this fiscal year but for the entire financial year. However, the recent turnaround clearly demonstrates the resilience of the Indian economy, and with two more quarters remaining, it appears likely that the country will retain its position as the world’s fastest-growing economy.

According to many analysts, India managed this recovery through timely and effective steps such as income-tax rate cuts and reductions in GST rates. These measures have provided a much-needed boost to manufacturing and consumption. The economy may gain further if issues related to trade and tariffs with the US are resolved. In that scenario, India’s 2025–26 GDP growth could even reach seven per cent or more, offering a substantial stimulus to the economy.

Another favourable factor this year is the longer festive season. In India, the festive period typically runs from October into the New Year, but this year it began in September, with Bengal’s Durga Puja falling earlier due to the Hindu calendar. As a result, it is expected that the third quarter will also record impressive growth, supported by strong domestic consumption.

Still, two concerns remain that could hinder India’s progress. First, global headwinds may cause investors to delay investments until conditions stabilise. Second, despite the impressive growth rate, it may still not be sufficient for India to reach the USD 5-trillion economy target by 2027–2028. To achieve that milestone, India must grow at a faster pace and prevent further depreciation of the rupee, which has already weakened by 4.2 per cent against the US dollar. The trend must be reversed, although India is still likely to overtake Japan by the end of this year as the world’s fourth-largest economy.