India’s economy has already shown great resilience, growing at a 7.4% annual rate in the quarter ending March 2025. This growth has occurred even amid continued global economic turbulence and is a testament to robust domestic consumption, especially in the countryside. The growth rate as of now has outpaced all previous forecasts. This has made India a prime candidate for a new trade agreement with the United States, similar to those that have already been signed with China and the United Kingdom.
According to the Indian government, the economy grew by 6.5% for all of fiscal year 2025. This increase comes in line with the initial estimates published back in February. India’s economy is forecasting a blistering 7.6 percent growth on the fiscal quarter. Most notably, it has surprised up from a 6.2% advance last quarter, accentuating its strength.
India is establishing a very positive bilateral economic relationship. They currently enjoy a $46 billion surplus with the U.S. Former President Donald Trump claimed just last week that India offered him zero tariffs on all U.S. imports. This announcement is a major development in the ongoing debate over U.S. trade relations. Last month, Trump’s administration slapped a 26% tariff on goods imported from India. This decision is in keeping with a “reciprocal” duties strategy that has pummeled more than 180 countries.
India’s economic prospects, notwithstanding these tensions, are sunny. It’s common knowledge that strong consumer demand has greatly powered this growth. Indeed, nonurban areas made up almost 40% of total retail consumer goods sales during the first quarter of 2025. Shilan Shah, deputy chief emerging markets economist at Capital Economics, noted that “falling inflation and downside risks to growth are to prompt another cut to the repo rate next week,” suggesting further monetary easing may be on the horizon.
The Reserve Bank of India is expected to lower its repo rate to 5.5% in response to these economic conditions. It would be the fifth cut in the ongoing easing cycle, with the objective of maintaining growth in the face of external headwinds.
And even with the enormous contribution that consumer consumption has made, challenges persist. The especially tentative ceasefire in Kashmir threatens to dampen investment and consumption, with the fear that the region might see a resurgence of violence. Shah remarked that the situation is “fragile and tensions could easily build again,” highlighting the importance of stability for ongoing economic growth.
India’s overall growth story is indeed a very exciting prospect. This positive momentum is propelled by robust domestic consumption and a reduced dependence on exports. As Asia’s third-largest economy, the island nation is poised to leave its rivals in the dust. Shah stated, “India was always going to overtake Japan – and Germany – given its positive demographics and scope for continued productivity gains.” He further added that “it isn’t a stretch to think that, by 2040, India’s economy could be the size of Germany’s and Japan’s combined.”