India’s Q2 FY26 GDP Growth Accelerates to 8.2%

GDP Growth Latest News

• India’s GDP growth for Q2 FY26 (July-September 2025) surged to 8.2%, marking a six-quarter high, driven by strong performance in manufacturing, construction, and financial services.

Overview of India’s GDP Performance in Q2 FY26

• India’s economy outpaced expectations, recording 8.2% real GDP growth, significantly higher than the consensus forecast of around 7.3%. 
• This marks the fourth consecutive quarter of acceleration, signalling robust economic momentum despite global uncertainties. 
• The government attributed this growth to a combination of pro-growth reforms, elevated public investment, strong services activity, and rising private consumption, particularly after the recent GST rate cuts that boosted discretionary spending. 

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Sectoral Performance Driving GDP Expansion

• Manufacturing and Industry Rebound
  • Manufacturing GVA rose by 9.1% in Q2, the fastest in six quarters, reflecting higher industrial output, improved capacity utilisation, and resilient demand. 
  • This compares to 7.7% in Q1 and just 2.2% in the same quarter of the previous fiscal. 
  • Industry as a whole grew 7.7%, supported by robust construction activity (7.2% growth). Mining was the only laggard, contracting due to monsoon disruptions. 
• Services Sector Continues Dominance
  • The services sector expanded by over 9% for the second consecutive quarter, led by:
    • Financial, Real Estate & Professional Services: 10.2%
    • Public Administration, Defence & Other Services: 9.7% 
  • These components played a pivotal role in pushing overall GDP beyond forecasts.
• Agriculture Shows Mild Improvement
  • Agriculture GVA grew 3.5%, supported by stable food inflation and better kharif output, though still lower than industry and services contributions. 

Consumption and Investment Trends

• Private Consumption Strengthens
  • Private Final Consumption Expenditure (PFCE) grew 7.9%, up from 7% in Q1, driven by:
  • Lower food inflation
  • GST rationalisation
  • Moderation in interest rates
  • Improvement in rural demand
  • Economists highlighted that lower inflation boosted discretionary spending, reinforcing consumption-led growth. 
• Investment Activity Supported by Capex
  • Gross Fixed Capital Formation (GFCF) grew 7.3%, aided by:
    • A 31% rise in government capital expenditure
    • Early signs of revival in private investment
    • Stronger credit flow to the industry 
  • Economists noted, however, that private investment remains sensitive to global risks, especially higher U.S. tariffs. 

Fiscal and Nominal Growth Concerns

• Despite strong real growth, India’s nominal GDP growth slipped to 8.7%, a four-quarter low. Economists warned that low nominal growth could strain fiscal math, as tax revenues rose only 4% in the first seven months of FY26. 
• To meet the budget target of 12.5% gross tax revenue growth, revenues must grow 22.3% in the remaining months of FY26, an ambitious requirement. 

Revised Growth Outlook

• The Chief Economic Advisor revised India’s FY26 GDP growth projection to at least 7%, up from 6.3-6.8% previously. 
• The RBI may also revise its 6.8% projection upward as the Q2 figure far exceeded expectations, especially ahead of the Monetary Policy Committee’s meeting.
• However, economists expect growth to moderate to 6.1% in the second half of FY26 due to normalisation of capital expenditure and global headwinds. 

Macroeconomic Implications

• Monetary Policy
  • With retail inflation at 0.25% in October, the lowest on record, the RBI was widely expected to initiate a rate cut. The strong GDP print may influence the central bank’s rate trajectory, but does not diminish easing expectations. 
• Demand-Side Resilience
  • The combined effect of falling inflation, consumption revival, and government spending indicates durable economic momentum.
• Global Risks
  • Persistent uncertainties, global slowdown, geopolitical tensions, and tighter trade conditions could weigh on export-linked sectors.

Source : TH | IE