India Surprises With Better-Than-Expected GDP Growth: Where Is The Economy Headed Next?
India reported that the GDP grew 7.8% year-on-year in April–June, the highest growth rate in five quarters.
Goldman Sachs is pricing in upside potential to its forecast for real GDP for the current financial year and calendar year despite headwinds from US tariff impact. This comes after India surprised with higher-than-expected GDP growth rate.
India reported that the GDP grew 7.8% year-on-year in April–June, the highest growth rate in five quarters.
"This came as a surprise as we had expected services sector growth (particularly tourism and transport) to remain muted," said Goldman Sachs.
BofA remained cautious on GDP growth because of concerns rising about slippage from trade uncertainty. A probability of disruptions in trade can create air pockets of shocks. Incremental policy easing and tax cuts can counter the shocks, BofA said in a note.
From a mechanical standpoint, BofA sees upside risks to 6.5% GDP forecast for financial year 2026, while downside risks to 7.0% GDP forecast for financial year 2027.
With the strong print for first-quarter GDP, it is possible for India to meet the Reserve Bank of India's GDP estimate of 6.5% for the ongoing financial year, Macquarie said. The higher-than-expected growth is also reducing chances of another rate cut from the regulator in October policy meeting. However, a 25-basis-point rate cut can happen in December after the rationalisation of GST structure takes place.
UBS Global Research kept the forecast for GDP in financial year 2026 unchanged at 6.4% while it reduced the GDP estimate by 40 basis points to 6.3% for financial year 2027.
In case the 50% US tariff sustains, it would not only lower goods exports, but would also impact employment, consumption and business confidence, with a further drag on investment, the brokerage said. It can also potentially weaken the Indian economy's ability to benefit from the global supply-chain shift in international trade.
UBS Global Research is hoping that the government will likely continue to take counter cyclical measures to support growth. For instance, the government can shift their focus on targeted support measures like providing immediate easy credit availability for medium, small, and micro enterprises, fiscal incentives, interest subvention.
