India’s economy extended its strong run for a third consecutive quarter, growing at a six-quarter high of 8.2 percent in July–September (Q2FY26) compared with 7.8 percent in the previous quarter, helped by robust manufacturing and a buoyant services sector, especially financial, real estate and professional services, according to official data released on November 28.
The print comfortably beat a recent Moneycontrol poll of economists, which had pegged Q2 growth at 7.3 percent, and was well above the Reserve Bank of India’s 7 percent projection for the quarter.
"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," said Aditi Nayar, chief economist, ICRA.
The sustained momentum means India is now on course to close FY26 with growth over 7 percent, provided activity holds up in the second half.
“Front loading of production for exports, sustained rural demand, government spending and a lower deflator on account of much lower inflation have together lifted India’s Q2 GDP print beyond consensus expectations, and this momentum is likely to continue despite some headwinds from trade challenges. The GST reforms and higher disposable incomes from income tax relief at the lower end of the tax brackets should keep urban demand supported, while good rainfall and the absence of major adverse climatic events point to rural demand holding up as well, giving us confidence of a strong GDP print in the second half," said Ranen Banerjee, partner and economic advisory leader, PwC India.
Manufacturing and finance power the upswing
On the output side, gross value added (GVA) expanded 8.1 percent year-on-year in Q2FY26, up from 5.8 percent a year ago. The manufacturing sector led the improvement, clocking 9.1 percent growth versus 2.2 percent in Q2FY25 and 7.7 percent in Q1FY26.
The upturn could be attributed partly to pre-festive stocking. Manufacturing now accounts for a little over 16 percent of total GVA, up from around 15.8 percent.
Financial, real estate and professional services remained the single biggest growth driver. The segment posted a double-digit expansion of 10.2 percent in Q2—a nine-quarter high—up from 7.2 percent in the same quarter last year, with its GVA rising to about Rs 12.38 lakh crore.
Trade, hotels, transport, communication and broadcasting-related services grew 7.4 percent, broadly maintaining the 6–7 percent range seen over the past year, while construction grew a solid 7.2 percent, supported by public capex and real-estate activity. Electricity, gas, water and other utilities reported more modest growth of 4.4 percent. Mining was flat on a year-on-year basis.
Agriculture, livestock, forestry and fishing grew 3.5 percent in Q2FY26, only marginally higher than 3.7 percent in the previous quarter and 4.1 percent in same quarter last year.
Consumption holds up; investment remains strong
On the expenditure side, private final consumption expenditure (PFCE) – a proxy for household consumption – rose 7.9 percent year-on-year in Q2FY26, accelerating from 6.4 percent in Q2FY25, despite the GST implementation having impact on consumption. The prime minister had announced GST reforms on August 15, while the cuts came into effect on September 22.
Gross fixed capital formation (GFCF), which captures investment in fixed assets, grew 7.3 percent, slightly slower than the 7.8 percent registered a quarter earlier but still indicating healthy investment momentum.
Government final consumption expenditure (GFCE) contracted 2.7 percent in Q2FY26 after growing 4.3 percent a year earlier, reflecting tighter central and state spending as authorities adhere to the fiscal consolidation path. Despite this drag from the public sector, overall GDP growth strengthened, underscoring the role of private consumption and investment.
External demand remained a net negative. Exports of goods and services grew 5.6 percent year-on-year, while imports rose 12.8 percent, widening the trade gap in real terms.
IMF sees domestic demand as key support
The pattern of strong domestic demand alongside external headwinds is in line with the assessment in the IMF’s recent Article IV staff consultation report. The Fund noted that India’s “very strong economic performance and resilience” has been underpinned by robust domestic demand, even as global uncertainty and new US tariffs on Indian exports weigh on the outlook.
Nominal concerns?
Nominal growth was slower at 8.7 percent--a four quarter low--compared with 8.8 percent in the previous quarter, a phenomenon that economists note can have implications for financial performance.
"Nominal GDP growth at 8.7% in 2Q 2025-26, however, is only 0.5% points above the real GDP growth. Nominal GDP growth in 1H of the fiscal year is estimated at 8.8%, implying a GDP deflator-based inflation of about 0.8%. This low deflator inflation is due to both CPI and WPI inflation rates keeping low at 2.2% and 0.1% respectively in 1H 2025-26. The below-trend nominal GDP growth has significant implications for the fiscal aggregates," said DK Srivastava, chief policy advisor, EY India.
Outlook
With real GDP growth at 7.8 percent in Q1 and 8.2 percent in Q2, first-half growth is tracking at roughly 8 percent. That gives the economy some cushion to absorb a likely moderation in the second half as base effects turn less favourable and the boost from statistical deflators wanes.
"The FY2026 real GDP expansion now appears set to materially exceed 7 percent. With the Q2 FY26 GDP growth exceeding 8 percent, 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," said Nayar.
Economists are, however, divided.
"Despite the high real GDP growth we retain our expectations of 25bp of rate cut in the upcoming policy as inflation trajectory remains benign," said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank
Economists polled by Moneycontrol expect growth to ease somewhat in Q3 and Q4 but still average 6.9 percent for the full year, slightly above the RBI’s 6.8 percent projection.
The RBI expects growth to average 6.3 percent in the second half of the year. At the current pace, Indian economy is set to expand 7.2 percent for FY26.
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