India’s surprise pickup in economic growth last quarter comes with rising concern that momentum may fade as U.S. President Donald Trump’s 50% tariffs hit the nation.

Gross domestic product growth accelerated 7.8% in the three months to June, the fastest pace in more than a year and well above economists’ forecasts in a Bloomberg survey. The performance was driven by stronger manufacturing and construction output as well as a pick up in government spending and services.

At a press conference on the quarterly data, India’s Chief Economic Adviser V. Anantha Nageswaran said he is sticking with the government’s 6.3%–6.8% growth forecast for the year through March, despite Trump’s steep levies on Indian goods. “The downside risks is there if the tariff impasse lasts longer,” he added.

Growth faces significant headwinds as the U.S. is India’s biggest export market, and Trump’s tariffs could severely hurt labor-intensive industries such as textiles and footwear. Job losses in those sectors could hurt sentiment and weigh on growth. Economists from Citigroup Inc. estimate the tariffs could reduce India’s annual growth by 0.6–0.8 percentage points.

“The effective macro hit from the 50% tariff imposition will start to feed through exports and have a domino effect on employment, wages and private consumption,” said Madhavi Arora, an economist with Emkay Global Financial Services Ltd. “This could further dampen private investment outlook and hinder growth.”

Tariff worries pushed India’s rupee to a record low on Friday of 88.21 against the dollar, making it Asia’s worst-performing currency this year. India 10-year bond yields jumped as much as 11 basis points after the GDP data, extending a streak of volatility in the local debt market over the past few days.

To cushion the tariff hit, Prime Minister Narendra Modi’s government is rolling out measures to boost private consumption, which makes up about 60% of the economy.

Modi announced a reduction in consumption taxes earlier this month, which will likely take effect from October, giving a boost to spending and helping to drive down prices. IDFC First Bank estimates the tax cut could lift nominal GDP growth by 0.6 percentage points over 12 months.

“Cumulative monetary stimulus, easing inflation, strong services sector activity and planned GST rationalization, will help counter the drag from the external sector on account of tariffs,” said Gaurav Kapur, an economist with IndusInd Bank Ltd. The latest numbers suggest the economy will manage to hold onto a growth rate of around 6.5% for the full year, he said.

Friday’s data also puts the monetary policy in focus. While some analysts expect the Reserve Bank of India to support the economy amid tariff pressures, others warn that last quarter’s growth pickup may strengthen the case for keeping rates on hold for longer. The RBI has cut rates by 100 basis points this year but left them unchanged at its most recent policy meeting.

The GDP print “has doused any expectations that the tariff-related turmoil could prompt monetary easing in the October 2025 policy review,” said Aditi Nayar, economist with ICRA Ltd.

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—With assistance from Shinjini Datta, Ravil Shirodkar and Siddhartha Singh.

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