India’s economy outperforms peers as it surges 7.4% in Q1

India’s economy surged 7.4% in January to March, much faster than forecasts and driven by construction and manufacturing, although uncertainty about US tariffs poses risks to the outlook.

Gross domestic product in Asia’s third-largest economy was above a forecast year-on-year growth of 6.7% in a Reuters poll, and was up from a revised 6.4% expansion in the previous quarter, official data released on Friday showed.

It was the fastest increase in GDP since January-March 2024.

“India’s growth is holding up in a growth-scarce environment,” said V. Anantha Nageswaran, India’s chief economic adviser, after the release of the data, adding India outshone other large and contemporary economies.

They include China, which grew 5.4% in January-March.

The Reserve Bank of India (RBI) expects GDP growth of 6.5% in the fiscal year beginning April 1. At that rate, India will remain the fastest growing major economy and could match Japan for size this year at $4.18 trillion, according to projections by the IMF.

The gross value added (GVA), seen as a more accurate measure of underlying economic activity, grew 6.8% in the first three months of 2025, compared to a revised expansion of 6.5% in the previous quarter. GVA strips out indirect taxes and government subsidy payouts, which tend to be volatile.

Manufacturing output rose 4.8% year-on-year in January-March, the final quarter of India’s fiscal year, compared with a revised expansion of 3.6% in the previous quarter, while construction activity jumped 10.8%, up from 7.9% in the previous quarter.

“The GDP print for Q4 is higher than expected. This indicates that the economy has recovered from the slowdown seen in the middle of last year,” said Sakshi Gupta, principal economist, HDFC bank.

However, the outlook for the current fiscal year faces challenges given a global slowdown and tariff uncertainties, she said, referring to U.S. President Donald Trump’s tariff hikes.

Trump proposed reciprocal tariffs of 26% on imports from India but they are on hold until July 9 as trade talks continue.

Growth in private consumer spending, which accounts for 57% of Indian GDP, eased to 6% year-on-year in January-March, from an upwardly revised 8.1% expansion in the previous quarter, as urban spending weakened whereas rural demand for durables and farm equipment like tractors improved.

Retail inflation, which eased to a near six-year low of 3.16% in April, alongside a favourable monsoon forecast, is expected to keep food prices in check and pave the way for the Reserve Bank of India to cut its policy repo rate again next month.

Government spending fell 1.8% in the three months through March compared to a revised expansion of 9.3% in the previous quarter, the data showed. Capital spending rose 9.4% in the quarter though private firms are expected to delay investments amid global uncertainties including trade tariffs.

Growth for the fiscal year was estimated at 6.5% and the size of the Indian economy rose to 330.68 trillion rupees ($3.87 trillion) as of the end of March.

Economists said that while economic growth in the current fiscal year could be affected by global uncertainties weighing on near term investment intentions, a strong monsoon, tax cuts announced by the government and continued interest rate cuts could support domestic demand.

 New Zealand hails trade talks: New Zealand’s deputy prime minister said on Friday that talks over a free trade agreement between his country and India were ongoing, but he didn’t provide a timeline for when the two nations could eventually sign a deal.

Winston Peters, who is on a two-day visit to India, said that the negotiations were “going with real meaning now,” calling them “a breakthrough in our economic relationship.”

India and New Zealand began negotiations in March for a trade pact, and had aimed to sign a deal in 60 days. The deal will significantly bolster economic ties between the two countries, but it has faced delays because of differences over tariffs on dairy products.

Bilateral trade between India and New Zealand stood at $1.7 billion in the 2023-24 financial year.

Talks between India and New Zealand were taking place amid global trade tensions, after US President Donald Trump’s decision to impose now-paused reciprocal tariffs on imported goods from several countries, including India.

Earlier this month, India and the United Kingdom clinched a trade deal. India is also engaged in trade talks with Washington.

Peters, who met with India’s Group of 20 emissary, Amitabh Kant, in New Delhi, said that India was New Zealand’s 12th-largest partner in trade and “we are determined that we’re going to work to change that.”

“Our strengths, from food and beverage products to agriculture, forestry, horticulture, education and tourism are world class. And our innovation in areas like outer space and renewable energy will find a welcoming partner in India,” he said.

Peters said that the relationship between the two countries extended to defense and security, calling it a “priority for New Zealand in the Indo-Pacific.”

Agencies