Despite a wave of punitive US tariffs, the Indian economy surged by a better-than-expected 8.2 per cent last quarter, marking its strongest growth performance in 18 months. The question now is whether this pace can be sustained once the full effects of Washington’s trade measures kick in.

Washington’s tariff hikes, which pushed the duty on Indian exports to a massive 50 per cent in August, had sparked fears of a serious hit to export manufacturers. Yet the economy gained speed, partly because manufacturers rushed to front-load shipments ahead of the tariff deadlines, a surge that was reinforced by strong domestic demand.

Analysts warn that GDP growth may moderate in the coming quarters if uncertainty over a US trade agreement persists. India remains one of the few major economies yet to finalise a deal with Washington.

“Going forward, the tariff impact is yet to play out as the front-loading effect fades,” said HDFC economist Sakshi Gupta. It’s also unclear whether the festive-season “jump in demand will sustain, especially given that urban hiring remains tentative.”

Exports fell nearly 12 per cent in October from a year earlier, including an 8.6 per cent drop in shipments to the US. The IMF has projected India’s growth to ease to 6.2 per cent next year if tariffs remain elevated. Bloomberg reports India hopes to conclude an initial tariff-reducing agreement with Washington by next month.

Economists had forecast a more modest 7-7.3 per cent expansion for the July-September period. Instead, India posted 8.2 per cent growth, up from 7.8 per cent in the previous quarter and well above the 5.6 per cent recorded a year earlier.

Prime Minister Narendra Modi hailed the figures as “very encouraging,” crediting them to the government’s “pro-growth policies and reforms.”

Buoyed by the data, Chief Economic Advisor V. Anantha Nageswaran raised the government’s full-year growth estimate to 7 per cent, from an earlier range of 6.3-6.8 per cent.

“India will remain the world’s fastest-growing major economy,” said Shumita Deveshwar, chief economist at GlobalData TS Lombard.

A major driver was manufacturing, which expanded 9.1 per cent, marking the fastest growth in over a year. Much of this reflected companies rushing to ship goods before the tariff deadlines.

Economists liken the US duties to a “starter’s pistol,” prompting firms to push production into overdrive. Garima Kapoor, economist at Elara Capital described the quarter’s output “blockbuster,” led by export front-loading.

Domestic demand also played a key role. Tax cuts on everyday products in late September helped spur festival-season spending, driving nearly 8 per cent growth in private consumption – from groceries to holiday bookings while producers built up inventories ahead of the festivals..

Services surged as well, with financial, real estate and professional services growing roughly 10 per cent, while transport and hospitality rebounded on renewed consumer demand. A full percentage point of central bank rate cuts earlier in the year greased the momentum.

Sujan Hajra of Anand Rathi said the numbers show India’s economy is running on “broad-based” strength.

Still, some economists urged caution, noting possible statistical quirks that may have inflated the GDP figures.

“Data-related challenges remain prominent,” said Kunal Kundu of Societe Generale, citing “a stark contrast between GDP figures and signals from multiple” earlier economic indicators.

The IMF recently gave India's GDP data a 'C' rating, indicating significant methodological weaknesses that hinder effective surveillance of the economy. This rating is the second lowest in terms of grading, and it highlights issues such as an outdated base year of 2011-12.

One cushion, economists say, is India’s vast domestic market, which continues to act as a shock absorber. India’s economy is mainly consumer driven, rather than export driven.

Analysts also argue that reforms in recent years, from digitisation to infrastructure expansion and better logistics, may finally be paying dividends.

Gurmeet Chadha of Complete Circle Capital said these changes have given the economy a “staying power” that makes it less vulnerable to outside shocks.

Maadhavi Arora of Emkay Global attributed the growth surprise partly “statistically favourable” effects and believes that “some of these factors will spill over” to the third quarter, leading to full year growth “comfortably hugging 7-per-cent plus.”

The quarter’s rapid expansion came against a backdrop of remarkably low price pressures. Consumer inflation in October slid to just 0.25 per cent, marking a record low in recent years. For the central bank, this raises the question of whether to cut interest rates at next month’s policy meeting or wait to see how the economy performs.

Hajra of Anand Rathi believes the low-inflation environment gives the RBI room for a quarter percentage point rate cut in December. Others argue that the economy is chugging along beautifully without further easing.

With growth now above 8 per cent, “the probability of a rate cut has certainly eased,” said Aditi Nayar, chief economist at ICRA in Gurugram.