India beats forecasts with 8.2% GDP growth in Q2; manufacturing up 9.1%

The Indian economy grew by a higher-than-expected 8.2 per cent, a six-quarter high, as increased factory production in anticipation of a consumption boost from the GST rate cut helped offset deceleration in farm output.

The growth in the second quarter, which compared to 7.8 per cent in the preceding three months and 5.6 per cent in the year-ago period, was also aided by a good showing by the services sector, which clocked double-digit growth.

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The previous high at 8.4 per cent was posted in the fourth quarter (January-March) of fiscal 2023-24.

India posts strong surge

The expansion helped India retain its position as the world's fastest-growing major economy. During the July-September quarter, the Chinese economy grew by 4.8 per cent.

As per data released by the National Statistics Office (NSO), the Gross Domestic Product (GDP) in the first half of 2025-26 worked out to be at 8 per cent, up from 6.1 per cent in the year-ago period.

With an 8 per cent growth rate in the first half, India may exceed the annual growth target of 6.3-6.8 per cent for FY26 as projected in the Economic Survey in January this year.

During the quarter, the manufacturing sector recorded a robust growth of 9.1 per cent compared to 2.2 per cent in the year-ago period.

Festive demand boosts output

Following the GST rate cut announcement by Prime Minister Narendra Modi in his Independence Day address, factories stepped up their output to meet the festival season demand. The GST rate cut came into effect on September 22.

The performance of the services sector, including banking and real estate, also witnessed an impressive growth of 10.2 per cent from 7.2 per cent in the same period a year ago.

However, the agriculture sector growth decelerated to 3.5 per cent from 4.1 per cent in the year-ago period.

Commenting on the growth numbers, Icra Chief Economist Aditi Nayar said India's GDP growth significantly surpassed expectations, printing at a six-quarter high of 8.2 per cent in Q2 FY2026, and displaying an acceleration over the 7.8 per cent growth seen in Q1 FY2026, in contrast to the widespread market expectation of some moderation.

Growth outlook faces headwinds

While the government's final consumption expenditure expectedly contracted, led by weak revenue spending, the growth in gross capital formation moderated between these quarters, she said, adding that discrepancies played an important role in bumping up the GDP growth in Q2 FY2026 compared to the preceding quarter.

"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 per cent seen in H1 FY2026. Nevertheless, the FY2026 real GDP expansion now appears set to materially exceed 7 per cent," she noted.

With the Q2 FY2026 GDP growth exceeding 8 per cent, she said, 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.

Private consumption fuels growth

Earlier in October, the Reserve Bank of India had upped the GDP forecast to 6.8 per cent from the earlier projection of 6.5 per cent for the current financial year.

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The statement further said the Real Private Final Consumption Expenditure (PFCE) has reported a 7.9 per cent growth rate during Q2 of FY2025-26 against the 6.4 per cent growth rate in the corresponding period of the previous financial year.

"Real GDP or GDP at Constant Prices in Q2 of FY 2025-26 is estimated at Rs 48.63 lakh crore against Rs 44.94 lakh crore in Q2 of FY 2024-25, registering a growth rate of 8.2 per cent," the NSO said in the statement.

Nominal GDP or GDP at Current Prices in Q2 of FY 2025-26 is estimated at Rs 85.25 lakh crore compared to Rs 78.40 lakh crore in Q2 of FY 2024-25, showing a growth rate of 8.7 per cent.

(With agency inputs)