India on track to be the fastest-growing major economy for yet another year

The GDP estimates by National Statistical Office for the second quarter have however surpassed even the most upbeat estimates on the street by miles

In many ways, the second quarter of 2025-26 (Q2FY26) was sprinkled with multiple mixed signals in different pockets: Consumption momentum was on a stop-and-start mode, impacted by heavy monsoons in some parts in the quarter, goods and services tax (GST) announcements in August triggered delayed purchase decisions in multiple segments and while jump in festival season sales reflected strong consumption demand in the economy, it overlapped with only ten days in the second quarter. On the manufacturing side, while exporters dealt with tariff uncertainties, frontloading of production plans ahead of various deadlines combined and higher investments and manufacturing production, along with several production lines reporting delayed runs due to heavy rains gave mixed signals. Similarly, while kharif sowing trends were running very strong, heavy rains in key grain producing states cast a doubt over the output expectations in the agricultural sector.  

 

The gross domestic products (GDP) estimates by the National Statistical Office for Q2FY26 have however surpassed even the most upbeat estimates on the street by miles. India’s real GDP picked pace to grow 8.2 per cent in Q2 compared with 5.6 per cent for the same quarter last year. Real output in the economy also witnessed a growth of 8.1 per cent in Q2FY26. The overall production growth was primarily driven by secondary (8.1 per cent) and tertiary sectors (9.2 per cent). Within the secondary sector, manufacturing and construction displayed robust performance with growth rates of 9.1 per cent and 7.2 per cent respectively at constant prices. And even agriculture sector posted a decent 3.5 per cent growth in Q2, helped by strong food crop production. Overall, the nominal output for the quarter touched ₹77.69 trillion, 8.7 per cent larger that same quarter last year. With this, the nominal output in first half of 2025-26 (H1FY26) has reached ₹155.94 trillion, versus ₹143.39 trillion in H1FY25, indicating an 8.8 per cent growth.

 

Apart from surprise bounces in key sectors, there are a few definite trends decipherable in the GDP data. The most visible one is the fact that share of consumption in GDP is gaining traction in real terms, which bodes well for consumption-focused industries going forward. Private consumption continues to improve sequentially, with real private consumption expenditure registering a 7.9 per cent growth in Q2FY26, compared to 6.4 per cent growth recorded in the same quarter last year. This takes the first half private consumption growth to 7.5 per cent higher than last year. 

 

Secondly, despite the deflator support coming in from lower inflation levels, even the nominal growth estimates were higher than earlier expected. The nominal GDP, or GDP at current prices, for H1FY26 stands at ₹171.30 trillion, up from ₹157.48 trillion in H1FY25, reflecting an 8.8 per cent growth. 

 

Next on, outlook for the second half of FY26 will start to see upgrades as well, as some of the risk elements, particularly tariff related uncertainties start to resolve in the current quarter and seasonal trends emerge. 

 

Overall, the most important take away is the fact that while long term and medium-term prospects for the Indian economy were already strong, short term momentum has picked up pace in the current year. The long-term prospects for the Indian economy has been driven by demographic dividend and large consumer market for some years now. Medium term prospects have also improved on back of some of the recent (de)regulatory interventions. And with the current GDP trend, short term momentum in the economy is strong as well. India is getting on track to be the fastest growing major economy for yet another year in FY26.

The author is chief economist at L&T Finance