The gross domestic product (GDP) growth for the June quarter of the current fiscal year paints a rosy picture at first glance — coming in at an impressive 7.8%, it comfortably beats expectations. But beneath the headline number lies a sobering reality: This is largely a statistical illusion, flattered by an unusually low deflator rather than a surge in the nominal output. Nominal GDP grew only 8.8%, well below trend, which will make meeting tax collection targets harder and strain debt sustainability dynamics.. The real test of India’s economic resilience will come later in the year as punitive US tariffs on exports take hold.

US President Donald Trump’s 50% tariff on exports from India to the US — the steepest against any Asian economy — is India’s most severe trade shock in decades. Even after exemptions, the effective rate is close to 33%; this could rise if tariffs are slapped on pharmaceuticals and electronics after the ongoing review. Analysts estimate the tariffs could shave off 20-50 basis points from annual GDP growth, threatening momentum at a time India is vying to position itself as a China 1 manufacturing hub.

The first-quarter growth surge reflects pent-up investment and consumption, buoyed by frontloaded government spending and exports rushed to the US to beat the tariff deadline. But nominal growth is already slowing, and exporters face rising input costs and weak global demand. The US tariffs will deepen this squeeze, eroding margins and pricing power, particularly in labour-intensive........

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