Aditi Nayar, Chief Economist at ICRA Ltd On India's GDP Growth Outlook

"For the second consecutive quarter, India's GDP growth significantly surpassed expectations, printing at a six-quarter high of 8.2% in Q2 FY2026, and displaying an acceleration over the 7.8% growth seen in Q1 FY2026, in contrast to the widespread market expectation of some moderation.

The upside surprise in the Q2 GDP growth print was driven by services, even as the agriculture and industrial sectors largely reported prints along expected lines.

The 9.7% surge in the public administration, defence and other services segment in Q2 FY2026 was quite surprising given that the Government of India's (GoI's) non-interest revenue expenditure had contracted by a sharp 11.2% YoY in the quarter, as against the 6.9% uptick seen Q1 FY2026. Besides, the YoY growth in the combined non-interest revenue expenditure of 22 state governments halved to 5.3% in Q2 FY2026 from 10.9% in Q1 FY2026. This suggests that the other services, which include segments like health, education, recreation and other personal services are likely to have outperformed in the quarter.

Manufacturing growth expectedly printed at a strong 9.1% in Q2, up from 7.7% in Q1, aided by an uptick in volume growth as reflected in the manufacturing IIP data, as well as a favourable base. The latter also supported an improvement in the electricity and mining prints relative to Q1. Construction growth cooled slightly, while remaining above the 7% mark for the 12th consecutive quarter.

On the expenditure front, private final consumption expenditure was the only component that witnessed an acceleration in growth in Q2 vis-à-vis Q1 FY2026. While government final consumption expenditure expectedly contracted, led by weak government revenue spending, the growth in gross capital formation also moderated between these quarters. Discrepancies played an important role in bumping up GDP growth in Q2 FY2026 as compared to Q1.

An adverse base, the potential negative impact of US tariffs and limited headroom for capital spending by the Government of India (vis a vis the Budget Estimates) may dampen the pace of growth from the robust 8.0% seen in H1 FY2026. Nevertheless, the FY2026 real GDP expansion now appears set to materially exceed 7%.

With the Q2 FY2026 GDP growth exceeding 8%, the probability of a rate cut in the December 2025 MPC review has certainly eased, notwithstanding the series-low CPI inflation print for October 2025."

Source : Equity Bulls

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