- Economy grows 7.4% in Jan-March vs revised 6.4% in Dec qtr
- GDP growth driven by construction, manufacturing
- Fiscal 2024/2025 growth estimate remains unchanged at 6.5%
NEW DELHI, May 30 (Reuters) - India's economy surged 7.4% in January to March, much faster than forecasts and driven by construction and manufacturing, although uncertainty about U.S. 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.
GLOBAL HEADWINDS, LOCAL TAILWINDS
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.
"We expect growth to stabilise around the mid-6% handle at the start of fiscal 2026, with farm output, purchasing power relief from lower inflation and monetary easing, as well as on-track public spending, expected to stay supportive of growth," said Radhika Rao, senior economist at Singapore-based DBS Bank.
"External uncertainties could impact through the trade and investment channels."
Reporting by Manoj Kumar and Aftab Ahmed; Editing by Susan Fenton
Source: Reuters