GDP Growth Tops Outlook at Six-Quarter High of 8.2%

Context:

• India’s GDP growth surged to 8.2% in Q2 FY26 (July–September 2025), marking a six-quarter high and exceeding market expectations.

• Following this strong performance, the Chief Economic Advisor (CEA) V. Anantha Nageswaran revised the full-year growth outlook for FY26 to at least 7%, signalling confidence in the economy’s momentum.

Key Highlights:

Growth Performance and Drivers

• Overall GDP Growth: 8.2% in Q2 FY26, continuing a fourth consecutive quarter of upside surprise.

• Manufacturing Sector: GVA rose by 9.1%, reflecting recovery in industrial output and corporate performance.

• Services Sector: Expanded by over 9% for the second straight quarter, led by financial services, real estate, and public administration.

Demand-Side Momentum

• Private Consumption: Rose for the second consecutive quarter, supported by:

  • Low food inflation

  • GST cuts

  • Reduced income tax rates

  • Easier interest rate conditions

• Investment (GFCF): Boosted by a 31% increase in government capital expenditure during July–September.

Policy and Forecast Implications

• The CEA revised FY26 growth forecast to ≥7%, up from 6.3–6.8% earlier.

• The Reserve Bank of India (RBI) may revisit its 6.8% growth projection for FY26 in light of stronger Q2 data.

Emerging Risks and Caution

• Economists caution about a possible slowdown in H2 FY26 due to:

  • Higher U.S. tariffs affecting exports

  • Normalisation of government capital expenditure

• The Monetary Policy Committee (MPC) faces a delicate trade-off: strong growth with low inflation versus the need to remain vigilant on external risks.

Relevant Prelims Points:

• Issue: Sustained high GDP growth and its drivers.

• Key Indicators:

  • GDP: 8.2% (Q2 FY26)

  • Manufacturing GVA: 9.1%

  • Services Growth: >9%

• Institutions:

  • CEA: Advises government on macroeconomic outlook

  • RBI/MPC: Sets policy rates to balance inflation and growth

• Impact: Positive sentiment for investment and fiscal planning.

Relevant Mains Points:

Definitions & Concepts:

• GDP (Gross Domestic Product): Total value of final goods and services produced in an economy.

• GVA (Gross Value Added): Output minus intermediate consumption; sectoral measure of value creation.

• MPC: RBI committee responsible for monetary policy decisions.

Economic Analysis (GS III):

• Growth Composition: Strong services and manufacturing indicate broad-based recovery.

• Demand Drivers: Fiscal push via capex and revival in private consumption.

• Policy Challenge: Managing growth momentum amid external headwinds and capex normalisation.

Way Forward:

• Sustain public capex quality while crowding in private investment.

• Strengthen export competitiveness to offset external shocks.

• Calibrate monetary policy to preserve growth without compromising price stability.

UPSC Relevance (GS-wise):

• GS III: Indian Economy—growth trends, investment, consumption, monetary policy

• Prelims: GDP, GVA, MPC, growth forecasts