India’s real GDP growth accelerated to 8.2% in Q2, marking its strongest performance in six quarters and building on the already solid 7.8% expansion in Q1. Together, these back-to-back robust prints highlight the sustained momentum of the world’s fourth-largest economy. The Q2 surge exceeded earlier projections, underscoring the economy’s resilience despite global uncertainties.
This strong performance was supported by a reviving rural economy, higher government expenditure, and front-loaded exports though statistical effects on account of GDP deflators and a low base also helped in pushing up the growth rate. Although private-sector capital formation remained comparatively subdued, the combined force of rural demand and public spending acted as a significant counterweight, lifting overall economic activity meaningfully.
A favourable inflation environment also added to the growth impetus. Producer and consumer prices eased in Q2 of FY26, creating a supportive macroeconomic backdrop for both consumption and investment.
Demand-Side Drivers
Strengthening Consumption and Steady Investments
Private Final Consumption Expenditure (PFCE), which constitutes nearly 62% of India’s GDP, grew by 7.9% year-on-year in July–September, faster than the 7.0% recorded in the previous quarter. This reflects firming consumer sentiment, aided by moderating inflation, rising rural incomes, and strong urban discretionary spending.
Gross Fixed Capital Formation (GFCF) with a roughly 30% share of GDP expanded by 7.3%. This growth was fuelled by:
Strong performance in the construction sector
A 31% rise in central government capital expenditure, and
Double-digit growth in machinery and equipment imports, indicating renewed capacity-building activity.
Sectoral Performance
Manufacturing and Services Lead the Upswing
Beyond consumption, manufacturing emerged as the star performer, registering a striking 9.1% expansion, far outpacing the modest 2.2% growth posted in the corresponding quarter last year. This was also higher than the 7.6% growth in Q1 FY25-26, reflecting broad-based improvement across the organised sector—both public and private corporate entities.
Key industries, including steel, cement, garments, automobiles, and tyres, posted substantial gains, highlighting both strong domestic demand and improved production efficiencies.
The services sector also recorded impressive momentum, growing 9.2% in Q2 FY26. Within services:
Financial, real estate, and professional services expanded by 10.2%, supported by healthy bank credit growth and sustained demand for IT and professional services.
Public administration, defence, and other services grew by 9.7%, reflecting continued government spending and administrative activity.
A Sustained Trend, Not a One-Off Spike
These strong numbers substantiate the thesis that India’s growth trajectory is not a temporary upswing but part of an ongoing, broad-based expansion. Several structural and cyclical factors reinforce this view:
The IMF’s positive assessment of India’s macroeconomic performance.
Continued progress on structural reforms, including labour code implementation, GST rate rationalisation, the new personal income tax regime, and deregulation measures.
Strong manufacturing and services activity, bolstered by festive-season demand and GST-driven efficiencies.
Stable core inflation, which has enhanced purchasing power and reduced uncertainties for businesses and households.
GST collections growing at 9.0% during April–October 2025, signalling resilient consumption and improved tax compliance.
Improving price dynamics and tax reforms that are increasing household disposable incomes and supporting the near-term consumption outlook.
Healthy corporate balance sheets, which are likely to drive a revival in private investments in the second half of FY26.
A supportive mix of stable inflation, sustained public capex, and ongoing economic reforms.
As Dr. V. Anantha Nageswaran, the Chief Economic Advisor, Government of India, cogently argued the cumulative GST collection growth of 9 % for April-October 2025 indicates that the underlying stream has remained resilient, aided by firm consumption and improved compliance.
Looking Ahead
Despite the presence of both domestic and global risks—some known, others emerging—India’s growth appears durable, broad-based, and increasingly self-sustaining. The economy is steadily gaining greater strategic and economic heft globally, positioning itself to play a more influential role in shaping global demand, supply chains, and investment flows.
India’s sustained growth momentum, backed by strong macroeconomic fundamentals and strategic reforms, reinforces the view that the country’s economic ascent is not just continuing; it is accelerating. With 7.8 % growth in Q1 and 8.2 % growth in Q 2, India is well on course to achieve a GDP growth of 7 % or even higher in FY 26.
ABOUT THE AUTHOR
Dr. Manoranjan Sharma is Chief Economist, Infomerics, India. With a brilliant academic record, he has over 250 publications and six books. His views have been cited in the Associated Press, New York; Dow Jones, New York; International Herald Tribune, New York; Wall Street Journal, New York.
