The National Statistics Office (NSO) is expected to release the quarterly growth estimates for Q2 on November 28.
In its bi-monthly monetary policy review that concluded on October 1, the Reserve Bank of India (RBI) had raised its GDP growth estimate for Q2 to 7 per cent from 6.7 per cent projected earlier, noting that domestic economic activity has continued to ‘sustain momentum’ in the September quarter.
Favourable base effects and the low deflator growth which boosted the headline growth number in Q1, are likely to have persisted through Q2, most economists believe.
The impact of steep US tariffs on Indian goods, which increased to 50 per cent from August 27, was not fully felt in Q2, even though front-loading of US shipments by domestic producers occurred at a slower pace than in Q1. Moreover, the impact of the goods and services tax (GST) rate rejig that kicked in on September 22, may not be too tangible in the Q2 print even as the indirect tax reform may have triggered a deferral of buying decisions before the revised rates came into effect. IDFC Bank Chief Economist Gaura Sengupta, who pegged GDP growth in Q2 at 7.3 per cent, pointed to the recovery in rural indicators becoming more broad-based in Q2 FY26 with a pick-up in two-wheeler and tractor sales.
More encouraging, she said, was the sustained decline for demand for jobs under the MGNREGA over July to October as it indicates job creation in rural areas.
“Real rural wage growth has also picked up which has supported consumption growth. Improvement was also seen in industrial activity indicators with a pick-up in industrial output [measured by the Index of Industrial Production or IIP] growth, and freight transportation services,” she projected
The downturn in GDP deflator growth which led to the upsurge in growth in Q1 remains low in Q2 as well and is now tracking at 0.6 per cent, with the continued cooling of inflation measured by the Consumer Price Index (CPI) and Wholesale Price Index (WPI).
Penning in Q2 GDP growth at 7.2 per cent, Rajani Sinha, chief economist, CareEdge Ratings said that despite high tariffs, Indian exports to the US in the non-petroleum and non-agriculture sectors maintained their momentum. The construction sector is expected to remain robust due to strong capital expenditure allocations, Sinha argued.
“High frequency indicators suggest a healthy momentum, driven primarily by agriculture, manufacturing and construction. The increase in MSP and good monsoon supported rural sentiment. Services sector performance, however, remains mixed as toll revenues, insurance premium and non-food credit growth improved, whereas air passenger traffic and e-way bill generation showed moderation in growth,” she added.
India Ratings’ Associate Director Paras Jasrai estimated 7.2 per cent growth in Q2, noting that the economy has navigated treacherous waters better than expected due to strong domestic demand. Steady government capex remains instrumental in lifting investment demand at a time of uncertainty, he added.
The rating firm expects GVA (Gross Value Added) growth to have firmed up to a seven-quarter high of 7.7 per cent in Q2 thanks to base effects from the 5.8 per cent growth recorded in Q2 of 2024-25 (FY25). It also pegged industrial sector growth at 7.8 per cent in Q2, the strongest in five quarters, thanks to strong growth in manufacturing and construction.
On the emerging risks to growth in the second half of 2025-26, Sengupta cautioned that high tariffs will impact the labour-intensive MSME sector which accounts for a 45 per cent share in merchandise exports, and this has the potential to drag real GDP growth by one percentage point over a 12-month period.
Manufacturing and services are both expected to have risen 8.5 per cent, although it means a slight downtick for the latter from the 9.3 per cent growth recorded in Q1, India Ratings posited. Farm sector growth is projected at 3.2% in Q2, from 3.7 per cent in Q1 as Kharif sowing growth stood at just 0.6 per cent, and crop productivity may be affected by the above normal monsoon.
The real GDP growth looks stronger as lower input costs have provided some succour to the growth momentum, despite heightened global economic uncertainty and volatility, it said, while flagging concerns that a continued weakening in nominal GDP growth may complicate the fiscal arithmetic.
Flat wholesale inflation and benign retail price rise might have further lowered the GDP deflator growth during Q2, possibly matching the level of 0.2 per cent recorded during Q2 FY20. Consequently, the nominal GDP growth is likely to have slipped below 8% yoy during 2QFY26, India Ratings averred.
“From the demand side, private consumption is a leading growth driver due to steady real income growth both in upper- and lower-income households. The resilient services sector along with the favourable base-led goods exports growth in the manufacturing sector propelled GDP growth from the supply side during Q2,” Jasrai explained.
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