India's GDP growth likely slowed to 6.7% in Q1
What's the story
India's economic growth is likely to have slowed down in the April-June quarter of this fiscal year. This deceleration is mainly due to weak urban demand and sluggish private investment. The recent tariff hikes by the US on Indian goods, including textiles and footwear, are also expected to impact exports. Despite these challenges, the country's GDP growth for this period is estimated at 6.7%, according to a Reuters poll of economists.
Tariff impact
US doubles tariffs on Indian goods
On Wednesday, the US doubled its tariffs on Indian goods to as high as 50%. The move comes in light of New Delhi's purchase of Russian oil. This is the most severe rate among US trading partners, matching that of Brazil. Economists have warned that such a drastic measure could hurt India's growth and jobs in the long run.
Economic resilience
India one of fastest-growing major economies
Despite the anticipated slowdown, India is still one of the fastest-growing major economies. The central bank expects full-year growth to remain close to 6.5%, with "minimal impact" from higher tariffs. The Ministry of Statistics will release GDP data for April-June, the first quarter of fiscal 2025/26, later today.
Growth drivers
Nominal GDP growth expected at 8%
A good monsoon, strong government spending, easing food inflation, and front-loaded US shipments are said to have supported growth in the quarter despite weak urban demand and slow private investment. However, nominal GDP growth, which includes the impact of inflation, is expected to have softened to 8% after averaging nearly 11% over the last eight quarters.
Revenue impact
Lower nominal growth may impact government tax revenues
The lower nominal growth, driven by multi-year low inflation, is likely to have impacted government tax revenues and corporate profits. Annual sales growth of 1,736 listed private manufacturing firms eased to 5.3% in the June quarter from 6.6% in the previous quarter. This data was revealed by a report from the Reserve Bank of India (RBI) earlier this week.
Growth concerns
Prolonged higher US tariffs could further dent India's growth
Some economists fear that prolonged higher US tariffs could further dent India's growth in the coming quarters. This is mainly due to a slowdown in exports and its impact on the country's attractiveness as an alternative manufacturing hub to China. "If it sticks for a year, GDP growth can slide by 0.7% points, with much of the burden falling on labor-intensive sectors such as jewelry, textiles, and food items," said Pranjul Bhandari, chief economist at HSBC.