India’s Q1 FY26 GDP Surges to 7.8%, Faces US Tariff Risks 📈
India’s economy posts a five-quarter high, but new US tariffs could challenge export-driven growth. 🛠️
Headline Results 🌟
India’s real GDP grew by 7.8% in Q1 FY26 (April–June 2025), accelerating from 6.5% a year earlier and surpassing expectations. 🚀 The National Statistics Office reported real GDP at ₹47.89 lakh crore and nominal GDP at ₹86.05 lakh crore, reflecting an 8.8% nominal growth from ₹79.08 lakh crore in Q1 FY25. The services sector, along with robust consumption and investment, drove this five-quarter high, despite mixed performances in mining and utilities.
Key Metrics Comparison 📊
| Metric | Q1 FY25 | Q1 FY26 | Notes |
|---|---|---|---|
| Real GDP Growth (%) | 6.5 | 7.8 | Five-quarter high, services-led |
| Real GDP (₹ lakh cr) | 44.42 | 47.89 | NSO estimates |
| Nominal GDP (₹ lakh cr) | 79.08 | 86.05 | 8.8% nominal growth |
| Tariff Headline | N/A | 50% (Aug 27, 2025) | Exemptions: pharma, semis, energy, minerals |
| GDP Drag (bps) | N/A | 20–90 | Scenario-dependent |
Tariff Overhang ⚠️
On August 27, 2025, the US imposed 50% tariffs on most Indian goods, exempting pharmaceuticals, semiconductors, energy, and critical minerals to maintain key supply chains. 🛡️ Approximately 55% of India’s $87 billion in US exports are affected, with textiles, gems, jewellery, leather, marine products, chemicals, and auto components facing the highest risks. Estimates suggest a potential GDP drag of 0.3–0.5 percentage points, aligning with a broader 20–90 basis points impact depending on market diversification and tariff pass-through.
Export Exposure to US Tariffs 📉
Affected Sectors (55% of exports):
- Textiles 🧵
- Gems & Jewellery 💎
- Leather 👜
- Marine Products 🐟
- Chemicals 🧪
- Auto Components 🚗
Exempted Sectors:
- Pharmaceuticals 💊
- Semiconductors 💻
- Energy ⚡️
- Critical Minerals ⛏️
Policy Signals 🗳️
The Chief Economic Adviser views the tariff challenge as a chance to fast-track domestic reforms and diversify export markets. 🌍 Strong private consumption and capital formation supported Q1’s growth, with the Reserve Bank of India (RBI) maintaining a 6.5% growth projection for FY26. Healthy PMI readings and capital expenditure momentum provide near-term resilience, though external trade tensions could pressure exports.
Market and Sector Takeaways 📈
Markets are likely to shift focus to domestic-oriented sectors like services and capital expenditure plays, which remain insulated from tariff impacts. Export-heavy sectors such as textiles, jewellery, and chemicals may face margin pressures unless they pivot to alternative markets or enhance value chains. Exemptions for pharmaceuticals, semiconductors, and energy provide a buffer for key market players with US exposure. 💪
GDP Growth Trend (Bar Graph) 📊
Real-Life Case Study 💼
A mid-sized Surat-based diamond and jewellery exporter, reliant on the US for 62% of its FY25 revenue, adapted to the 50% tariff hike on August 27, 2025. The firm negotiated split-invoicing for exempt-adjacent components, shifted focus to EU and GCC markets, and reduced US exposure to 45%. By exploring nearshoring in a US free-trade zone, it cushioned margin compression from 14% to an estimated 10–11% over the next two quarters. 🔄
What It Means for Investors 💹
The 7.8% growth supports resilience in domestic cyclicals, banks, and services, while export-driven sectors face tariff-related challenges. Investors can lean into infrastructure, manufacturing capex, and urban consumption themes for 2025. Globally diversified exporters with exemptions or pricing power remain attractive. Monitoring rupee volatility and tariff exemptions will be key for Q2–Q3 strategies. 📅
Outlook 🔮
With sustained domestic capex and consumption, India can maintain growth above 6.5% despite tariff headwinds. Policy reforms, export diversification, and leveraging exemptions can mitigate impacts. Keep an eye on logistics improvements, free trade agreements, and MSME support to sustain Q1 momentum into FY26. 🚀
Frequently Asked Questions ❓
What drove India’s GDP growth to 7.8% in Q1?
Services strength, stable consumption, and investment momentum lifted Q1 real GDP to 7.8%, with nominal GDP rising 8.8% to ₹86.05 lakh crore, per NSO and media reports.
How do US tariffs affect India’s economy in 2025?
The 50% tariff on most Indian goods from August 27, 2025, risks a 0.3–0.5 percentage point GDP drag, impacting textiles, jewellery, leather, marine products, chemicals, and auto components, with exemptions for pharma, semiconductors, energy, and minerals.
What is the Q1 economic growth outlook for the next quarter?
RBI’s baseline projection remains near 6.5%, with upside from domestic capex and services but downside risks from tariffs and global volatility.
How should investors approach the India market outlook?
Domestic cyclicals and services are resilient, while tariff-exposed exporters face pressure unless they diversify or enhance value chains. Exempted sectors like pharma offer stability.
Is the 7.8% GDP growth sustainable?
With reforms, export diversification, and sustained capex, growth above 6.5% is feasible, though tariffs and global headwinds require close monitoring.
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