India GDP Review: India’s Economy Surges 8.2% in Q2
India’s GDP grew 8.2% in Q2 FY26, far exceeding market and RBI expectations and marking its strongest performance in six quarters. The expansion was powered by manufacturing, services and a sharp rebound in consumption, amplified by a favourable deflator and GST rate cuts. With first-half growth now averaging 8%, the RBI faces a more complex backdrop as it weighs a December rate cut against an economy clearly gaining traction.
Figure 1: India Real GDP Growth (%)
India delivered a striking upside surprise in the July–September quarter, with GDP expanding 8.2% yr/yr, the fastest pace in six quarters and well above both the Reserve Bank of India’s 7% projection and our expectations. The latest National Statistics Office data confirm an economy outperforming under pressure—absorbing tariff shocks, navigating weak global demand, and still gaining momentum. Real GDP rose to INR 48.6 trillion, while nominal GDP grew 8.7% to INR 85.3 trillion. The scale of the beat owed as much to underlying demand strength as to an unusually benign deflator, with soft inflation mechanically pulling real growth higher. We expected some lift from prices, but the magnitude signals that easing cost pressures and GST rationalisation have materially altered the growth arithmetic this year.
The performance was broad-based. Manufacturing surged 9.1%, a dramatic turnaround from 2.2% a year earlier, supported by rising output, lower input costs and pre-festival inventory accumulation. Services expanded 9.2%, led by a 10.2% rise in financial, real estate and professional services—an indication that the domestic cycle remains firmly in expansion mode. Construction clocked 7.2%, sustaining the infrastructure-led support that has carried the economy through a turbulent global backdrop. Agriculture, while more moderate, grew 3.5%, aided by improved kharif sowing and favourable weather conditions. Real GVA grew 8.1%, signalling that the expansion is not merely a statistical distortion but a reflection of genuine sectoral breadth.
Private consumption grew 7.9%, a notable improvement driven by rural recovery, firmer farm output, and early transmission of this year’s cumulative rate cuts. The September GST overhaul—which reduced taxes on nearly 380 items—appears to have turbocharged demand at the margin by lowering effective prices for mass-consumption goods. Investment activity remained healthy, with gross fixed capital formation rising 7.3%, underpinned by public capex and continued momentum in steel and cement. High-frequency indicators—factory output, mobility data, retail spending and bank credit—had already implied Q2 strength, suggesting the print is not a one-off.
The blockbuster Q2 number lands days ahead of the RBI’s December 3–5 policy meeting, complicating the case for an immediate rate cut even as consensus among economists had shifted firmly toward a 25-basis-point reduction. Inflation has collapsed, consumption remains uneven at the margin, and the rupee has faced episodic stress stemming from 50% US tariffs and roughly USD 16bn in equity outflows. Yet an economy expanding above 8% in the first half of the year, compared with 6.1% in H1 FY25, strengthens arguments for a more calibrated easing path. The RBI’s full-year growth projection of 6.8% now looks conservative; pressure to upgrade the outlook is rising.
The outlook for H2 FY26 remains anchored by three forces: easing inflation, resilient domestic demand, and sustained public investment. But tail risks persist—tariffs, geopolitics, and a volatile global financial environment—limiting the scope for policy complacency. Still, Q2’s outcome suggests India is successfully leveraging its domestic engines to buffer global shocks. For now, the data reaffirm India’s position as the fastest-growing major economy, with its growth model—led by consumption, services and manufacturing—demonstrating resilience at a time when many economies are slowing.