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September 01, 2025 India's Economy Shows Robust Growth Amidst Global Headwinds, Government Prepares to Mitigate US Tariff Impact

India's economy demonstrated significant resilience in the first quarter of fiscal year 2025-26, recording a robust 7.8% GDP growth, defying earlier forecasts and reinforcing its position as the world's fastest-growing major economy. This broad-based growth comes even as the nation faces challenges from new US tariffs, prompting the Indian government to formulate strategies to protect its exporters and stimulate domestic demand. The Reserve Bank of India Governor also reiterated confidence in India's imminent rise to become the world's third-largest economy.

India's economy has showcased remarkable strength, with its Gross Domestic Product (GDP) expanding by 7.8% in the April-June quarter of fiscal year 2025-26 (Q1 FY26). This performance marks a five-quarter high, surpassing previous estimates and underscoring the economy's inherent resilience and accelerating growth momentum. Department of Economic Affairs (DEA) Secretary Anuradha Thakur highlighted that this growth is broad-based, supported by healthy performance across key sectors including manufacturing (7.7%), construction (7.6%), and services (9.3%).

Despite this optimistic outlook, the Indian economy is navigating challenges posed by new tariffs imposed by the United States. These tariffs, particularly a 50% hike on certain Indian goods, have raised concerns among exporters, with sectors like gems and jewellery, textiles, and mentha oil already seeking government relief. In response, the Indian government is actively working on comprehensive measures to protect its industries and workers. DEA Secretary Anuradha Thakur stated that the government is assessing the potential impact on employment-heavy sectors and is preparing solutions, including easing liquidity pressures for exporters and promoting targeted import substitution. The Commerce Ministry is also reportedly devising short, medium, and long-term plans to shield Indian exporters from the tariff fallout.

The robust Q1 GDP figures are seen by many as a strong rebuttal to criticisms, with some experts noting that India's domestic demand, which accounts for over 60% of its GDP, provides a significant buffer against external trade shocks. Furthermore, the Reserve Bank of India (RBI) Governor Sanjay Malhotra recently expressed confidence that India is poised to become the world's third-largest economy soon, attributing this progress partly to initiatives like the Pradhan Mantri Jan Dhan Yojana which have fostered financial inclusion and national development.

Other notable developments include the government's focus on maintaining fiscal prudence, with confidence expressed in achieving the FY26 fiscal deficit target of 4.4% of GDP. Additionally, the upcoming GST rationalization is expected to benefit various sectors, including textiles and fertilizers, and potentially lower commodity prices. There are also ongoing efforts to diversify export markets, with Indian exporters shifting focus to new destinations like the UAE, Bangladesh, and Italy amidst the US tariff challenges.

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