India's economy grew by faster-than-expected 7.4% in the March quarter

India's economy expanded at a faster-than-expected annual rate of 7.4% in the quarter ended March, despite the growing uncertainty in the global economy.

The gross domestic product in the first three months of 2025, or the fourth quarter of the government's fiscal year 2025, was sharply higher than the 6.7% growth forecast by economists in a Reuters poll.

That marked the strongest quarterly growth in the fiscal year of 2025, accelerating from a 6.2% expansion in the previous quarter, according to government data released Friday.

For the full fiscal year of 2025, India's economy expanded by 6.5%, in line with the government's February estimate.

Growth outlook in Asia's third-largest economy has remained relatively robust, thanks to strong domestic consumption and relatively lower dependence on exports, cushioning the blow from U.S. President Donald Trump's erratic trade policy.

Trump last month slapped tariffs of 26% on goods imported from India as part of his "reciprocal" duties on over 180 countries, only to put them on a 90-day pause days, allowing nations, including India, to negotiate deals with the U.S. A 10% base tariff continues to apply during the pause.

India currently runs a nearly $46 billion surplus with the U.S., according to government data.

New Delhi is seen by some as the next in line to clinch a deal with the U.S., following its agreements with China and the U.K. Trump reportedly said earlier this month that India had offered zero tariffs on all U.S. imports.

The Reserve Bank of India cut interest rates last month for a second consecutive time to 6% and shifted its policy stance to accommodative in a bid to bolster growth. The central bank is expected to deliver another rate cut in June.

"Falling inflation, downside risks to growth to prompt another cut to repo rate next week, said Shilan Shah, deputy chief emerging markets economist at Capital Economics, forecasting the repo rate will fall to 5.5% in the current easing cycle.

The ceasefire in Kashmir is "fragile and tensions could easily build again," which in turn may hold back investment and consumption, added Shah. Tensions between India and Pakistan boiled over earlier this month leading to military actions between the two nuclear-armed neighbors.

That said, India's growth story could still hold, in part helped by the improving consumer demand in rural areas. Consumption contributed over half of India's economy, with rural areas accounting for nearly 40% of overall consumer goods sales in the first quarter of 2025, data from market research firm NielsenIQ showed.

International Monetary Fund projects India's economy to reach $4.187 trillion in 2025, modestly overtaking Japan's $4.186 trillion, making it the world's fourth-largest economy.

"India was always going to overtake Japan – and also Germany – given its positive demographics and scope for continued productivity gains," said Shah, adding that "it isn't a stretch to think that, by 2040, India's economy could be the size of Germany's and Japan's [economy] combined."