Speaking virtually at an event organised by the Indian Chamber of Commerce, Chief Economic Adviser (CEA) V. Anantha Nageswaran on Saturday (August 30, 2025) said the high growth momentum exhibited in the first quarter of the current fiscal is expected to continue in the coming quarter as well, with a downward bias emanating from high U.S. tariffs.
The Indian economy reported a stronger-than-expected 7.8% growth in April-June, its fastest pace in five quarters.
“I think the first quarter numbers for the fiscal year were definitely better than expected. A lot of people attributed the fact that the GDP deflator was much weaker this year compared to last year… in some sense, the GDP deflator being on the weaker side was a good thing and was not an unknown aspect. That was factored into the consensus expectations of Indian economists in the private sector,” he said.
“Yet the GDP growth number for the first quarter in the current fiscal year was much better than expected…it attests the underlying resilience of the Indian economy in general and the lagged effects of various initiatives that the government has been undertaking since its beginning in 2014 and more so in the last two Budgets continued its momentum in the second fiscal quarter as well,” Mr. Nageswaran told PTI.
Further elaborating, he said, the trade impasse with the United States is continuing for the moment, so there will be some impact in the second quarter, as increased tariffs on Indian shipments took effect in August.
A steep U.S. tariff of 50% on goods from India took effect on August 27. The tariffs – among the highest in the world – include a 25% penalty for buying crude oil from Russia. On August 7, the Trump administration enforced a 25% tariff on Indian goods, citing India’s persistent oil imports from Russia and long-standing trade barriers.
“There were two parts of the U.S. tariffs. Both will have an impact in the second quarter and possibly a little bit into the beginning of the calendar fourth quarter or the fiscal third quarter,” he said.
But, he said, “I think some of these tariff measures will be short-lived and there are a lot of conversations going on between India and the U.S. government. And I do believe that a resolution will be found sooner rather than later.
He confidently said that the tariff impact on growth activities will be contained to the second quarter, and maybe at most a part of the third quarter.
“Besides,” he said, “they will also be compensated for by the GST tax relief that is coming up and the impact of the very good monsoon we have had, and agricultural production should start doing better than what we saw in the fiscal first quarter.
The agriculture sector recorded a 3.7% growth, up from 1.5% in the April-June period of 2024-25, as per the data released by the National Statistics Office (NSO) on Friday (August 29, 2025).
The Economic Survey tabled in parliament in January had projected real economic growth of 6.3-6.8% for FY26.
The gross domestic product (GDP) growth of 7.8% in the first quarter of the ongoing fiscal year was mainly driven by a good showing by the farm sector, and also helped by services like trade, hotel, financial and real estate.
The previous highest pace of growth in the country’s GDP was recorded at 8.4% during January-March 2024, as per the data.
India remains the fastest-growing major economy, as China’s GDP growth in the April-June period was 5.2%.
On U.S. tariffs
Chief Economic Advisor (CEA) Anantha Mr. Nageswaran said that the Centre, along with various stakeholders, was actively working overtime to cushion the export sector from the tariffs imposed by the United States.
The imposition of an additional 25% tariff by the U.S. has raised the overall duty to 50%.
He said crises, whether minor or major, often act as catalysts, providing focus and purpose for all segments of society – including the government, private sector, and households – to undertake necessary actions that might otherwise have been delayed.
Since the tariffs took effect on August 27, “conversations have been happening in the last three to four days” involving exporting bodies, private sector promotion agencies, and the ministries concerned, he said.
The Ministry of Finance and other ministries are “working overtime” to formulate a strategy, aimed at providing both a “time cushion” and a “financial cushion” for the affected sectors so they can “weather the present storm and also emerge stronger”.
On the trade front, Mr. Nageswaran said a proposed agreement with the U.S., negotiated “in good faith” and close to conclusion, had been delayed due to “unexpected developments”, though not denied. He also referred to India facing a penal tariff for purchasing Russian crude oil, which the Ministry of External Affairs has described as unreasonable. He expressed hope that tariffs would be “short-lived” and that “an understanding of the importance of the larger dimensions of the India-U.S. relationship will eventually prevail”.
The CEA highlighted several “silver linings” that point to a robust and improving economic environment.
“India’s real GDP grew by 7.8% year-on-year in the first quarter of the current financial year, supported by the ‘GDP deflator’,” he said. Nominal GDP growth came in at 8.8%, exceeding private sector economists’ fears of 8-8.2%, he added.
Mr. Nageswaran attributed the lower nominal GDP growth compared to previous quarters to “good deflation” – a decline in input costs such as crude oil, industrial metals, and raw materials – while enterprises’ pricing power remained intact.
The manufacturing sector’s Gross Value Added (GVA) rose by 10.1% in nominal terms and 7.7% in real terms, reflecting its strength and providing hope that full-year nominal GDP growth will stay near the 10.1% assumed in the Union Budget.
Mr. Nageswaran said a “huge tax cut” announced in February for middle and upper-middle-income households means a family of two earners with annual income up to ₹26.7 lakh will pay no direct income tax, already visible in higher advance tax payments, he said.
Further relief is expected through rationalisation of GST rates, reduction in the number of slabs, and simplification of processes, he said.
He highlighted the employment-linked incentive scheme announced in the July 2024 budget, which rewards both employers and employees. For employees, it offers a one-time reward for taking up full-time jobs and assistance with relocation expenses, while employers receive cash incentives to continue hiring.
He said the scheme is crucial for striking the right balance between job creation and competitiveness in the age of AI.
The CEA noted India’s credit rating upgrade by Standard & Poor’s, the first in 30 years, and expressed confidence that other agencies such as Fitch may follow.
He underlined that fiscal prudence – cutting the fiscal deficit from 9.2% in 2021 to an estimated 4.4% this year – has reduced the 10-year bond yield risk premium from 500-600 basis points in 2014 to about 230-240 points now, even reaching a low of 180 points recently after it hardened a bit recently.
This has lowered borrowing costs for the government and contributed to a three-percentage point reduction in the cost of capital for the private sector over the last decade, he said.
Mr. Nageswaran said India is actively pursuing trade diversification through free trade agreements with countries such as the UAE and the U.K., and ongoing discussions with Oman and Bahrain, some of which could materialise before the year-end.
Calling the current situation an opportunity, Mr. Nageswaran urged the private sector to diversify export destinations, be responsive to changing consumer preferences, invest in product innovation and R&D, and improve business practices to enhance competitiveness.
“Each one of us has an obligation to ourselves, society, our employees and our customers to use this opportunity to improve the way we do business and strive for innovation and excellence,” he said.
He added that the government, on its part, is committed to doubling down on deregulation, improving ease of doing business, supporting job creation, and engaging with the U.S. to resolve the tariff issue.
