India's annual growth hits 6.5%

AFP | Mumbai

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India's economy grew by 6.5% in the fiscal year that ended in March, official data showed yesterday, among the world's top performers but still sluggish compared with its recent track record.

Gross domestic product rose at its slowest pace in four years, with growth coming in well below the 9.2% recorded in the previous financial year.

While the economy has rebounded over the past two quarters, helped in part by strong agricultural output, US President Donald Trump's tariff blitz poses risks to a sustained recovery.

New Delhi, which wa s slapped with 26% reciprocal tariffs, is currently negotiating a trade deal with Washington that it hopes will spare it the worst of Trump's trade push.

"Although India is expected to see its GDP grow 6.5% again in fiscal year 2025-26, there remains a great deal of uncertainty due to Trump's tariff policies," said Sam Jochim, an economist at EFG Asset Management.

"The ability of the Modi government to strike a deal with Trump could prove paramount for India's economic outlook."

Analysts believe the annual growth figures, along with cooling inflation data, will convince India's central bank to continue its interest rate easing cycle at its review meeting next week. The GDP figures released yesterday were slightly above analyst expectations of 6.3% but matched the government's own projections of 6.5% yearon-year growth.

The data for the January-March quarter was brighter, with GDP growing 7.4% year-onyear -- the fastest this fiscal year and beating analyst estimates of 6.8% growth.

The National Statistics Office said in a media release that growth in the March quarter was helped by a surging construction sector.

Nearing Japan

While India is still the fastest-growing major economy, the 2024-25 fiscal year growth figures remain below the 8% pace that experts say New Delhi needs to create enough wellpaying jobs and generate economic prosperity.

The slowdown in economic activity over the past year pushed Prime Minister Narendra Modi's government into delivering $12 billion in income tax cuts this year, a move aimed at putting more money in the hands of millions of consumers.

The Reserve Bank of India also cut interest rates in February for the first time in nearly five years and delivered another reduction in April.

More recently, public debate over the country's economic ascent was triggered after a government official claimed India had surpassed Japan to become the world's fourth-largest economy.

Projections by the International Monetary Fund, however, indicate that the switch will not happen until the end of this year. The claim nevertheless prompted swift self-praise from bosses of Indian companies and ruling party lawmakers.

Experts also warned that the timeline for India beating out Japan could be delayed by fluctuations in exchange rates.

"Our forecasts suggest that India will overtake Japan by the middle of 2026," Shilan Shah of Capital Economics said in a note this week.

"But the big picture is that India was always going to overtake Japan -- and also Germany -- given its positive demographics and scope for continued productivity gains."