Strong domestic demand support, India's GDP unexpectedly accelerated to 7.4% in the first quarter

In the current context of a global economic slowdown and trade uncertainties, India is experiencing counter-cyclical growth—its GDP grew by 7.4% year-on-year in the first quarter, far exceeding economists' expectations.

On the 30th, data released by the Indian Statistics Bureau showed that India's economic growth rate for the fourth quarter of the 2025 fiscal year (i.e., the first quarter of 2025) reached 7.4%, significantly surpassing the economists' forecast of 6.6%. The previous value was 6.2%.

For the entire 2025 fiscal year, India's economy is expected to grow by 6.5%, consistent with the government's estimate made in February. India's growth outlook remains relatively robust, primarily due to strong domestic consumption and relatively low dependence on exports, effectively cushioning the impact of Trump's unpredictable trade policies. The IMF predicts that India's economy will reach a size of $4.187 trillion by 2025, slightly surpassing Japan, making it the fourth-largest economy in the world.

India's GDP Soars 7.4% in Q1, Central Bank May Cut Rates Again

Government data shows that India currently has a trade surplus of nearly $46 billion with the United States. Some observers believe that India is likely to become the next country to reach an agreement with the U.S. Reports indicate that Trump stated earlier this month that India has proposed implementing zero tariffs on all U.S. imports.

The Reserve Bank of India cut rates to 6% last month for the second consecutive time and shifted its policy stance to accommodative to boost economic growth. The market currently expects that the Reserve Bank of India will cut rates again in June.

Shilan Shah, Deputy Chief Emerging Markets Economist at Capital Economics, predicts that during the current easing cycle, India's policy rate will drop to 5.5%. He stated:

"The decline in inflation and the downside risks to growth will prompt another cut in the repo rate next week."

However, the growth outlook is not without its clouds. Earlier this month, tensions escalated between India and Pakistan, leading to military actions between the two nuclear-armed neighbors. Shah pointed out that the ceasefire in Kashmir is "fragile, and tensions can easily escalate again," which may suppress investment and consumption.

Consumption-Driven Growth: Will India Become the Fourth-Largest Economy in the World?

Despite this, India's growth story is still expected to continue, partly due to improved consumption demand in rural areas. Consumption contributes to more than half of India's economy, with market research firm NielsenIQ reporting that in the first quarter of 2025, rural areas accounted for nearly 40% of overall consumer goods sales.

The International Monetary Fund predicts that India's economy will reach a size of $4.187 trillion by 2025, slightly surpassing Japan's $4.186 trillion, making it the fourth-largest economy in the world.

Shah stated:

"Given India's favorable demographic structure and the ongoing potential for productivity improvements, it is inevitable that India will surpass Japan and even Germany.

By 2040, it is not unimaginable for India's economy to reach the combined level of Germany and Japan's economies."

Market Reaction

After the data was released, India's 10-year government bond yield rose by 2 basis points to 6.27%.