NEW DELHI, Feb 27 (Reuters) – India’s economic growth slowed in the October-December quarter as government spending and private investment eased, but the South Asian nation remained the world’s fastest growing major economy, helped by strong consumption.
The economy grew 7.8% in October-December from a year earlier under a new data series, slowing from 8.4% expansion in the previous quarter.
The Indian government’s projections under the new data series marginally boosted growth for financial year ending March 31. The economy is estimated to grow by 7.6% in 2025/26, the National Statistics Office said on Friday. It had been forecast to grow by 7.4% under the old data series.
For financial year 2026/27, the country’s projected economic growth has been revised to 7%-7.4% under the new series, said Chief Economic Adviser V Anantha Nageswaran after the data was released. In his annual report released last month, the economy was projected to grow at 6.8%-7.2% for 2026/27.
The South Asian nation will comfortably cross the $4 trillion mark in the next financial year, Nageswaran said.
INDIA ATTEMPTS TO OVERCOME TARIFF CHALLENGES
For much of the current financial year, India’s economy has contended with uncertainty from tariffs, which have weighed on exports.
In response, Prime Minister Narendra Modi’s administration accelerated domestic reforms, including cutting consumer taxes on hundreds of items and pushing ahead with long-delayed labour reforms.
Earlier this month, New Delhi reached an interim agreement with Washington that reduces effective tariffs to 18%, easing trade tensions, although the deal has yet to be formally signed.
The U.S. Supreme Court’s order striking down President Donald Trump’s global tariffs may improve India’s trade position in its upcoming interim negotiations. Meanwhile, Trump has announced a temporary 10% duty on all nations, including India, and promised to raise it to 15%.
PRIVATE CONSUMPTION REMAINS STRONG
Despite those pressures, private consumption remained strong, expanding by 8.7% year-on-year in the October-December period compared with an 8% expansion in the previous quarter.
Government spending rose 4.7% year-on-year in October-December, down from a 6.6% increase the previous quarter while private investment grew 7.8%, lower than the 8.4% growth a quarter ago.
Manufacturing grew by 13.3% in the third quarter, compared with 13.2% a quarter ago. Financial services and hospitality sectors held strong.
Growth in farm output, a sector which employs more than 40% of the workforce, slowed to 1.4% in the third quarter of the current fiscal year from 2.3% a quarter ago.
“Service sector performance signals a strong lift, besides double-digit growth in manufacturing,” said Radhika Rao, economist at Singapore-headquartered DBS Bank.
“The October-December quarter also benefited from indirect tax rationalisation and festive demand, in addition to a better faring rural farm sector,” Rao said.
As India’s growth has remained strong, rating agency ICRA expects the central bank to keep rates on hold, with inflation likely to rise temporarily, its chief economist Aditi Nayar said.
The Reserve Bank of India (RBI) kept its key repo rate unchanged earlier this month.
STATISTICAL OVERHAUL
India has overhauled its statistical framework this year, first updating the consumer price index and now revising the GDP series to better reflect structural changes in the economy.
As part of the changes, the government has widened its data sources to include Goods and Services Tax (GST) filings, corporate financial returns and digital platform data to improve coverage of economic activity.
At the core of the GDP overhaul is the shift to adopting more granular price deflation to improve accuracy. Until now, it largely deflated only input prices, with heavy reliance on the wholesale price index.
The changes are expected to address concerns raised by the International Monetary Fund last year over India’s national accounts methodology, including the outdated 2011/12 base year and reliance on wholesale prices, for which it gave the framework a “C” rating.
