Will Q2 growth cross 7 pc, reverse downward GDP swing? Key indicators say otherwise

Ahead of the GDP data for Q2 of FY26 scheduled to be released by November 28, there is optimism in the air that growth is likely to surpass the 7 per cent the RBI projected — despite the 50 per cent US tariff hurting exports.

The RBI’s latest bulletin remains gung-ho about growth — despite its October projection of the GDP falling from 7.8 per cent in Q1 to 7, 6.4, and 6.2 per cent respectively in the subsequent three quarters.

But some of the critical growth indicators don’t seem to agree.

Fall in exports, FDI inflows, core sector growth

First, the US tariff has already taken its toll in September and October — with goods exports to the US falling by -11.9 per cent in September (the last month of Q2) and by -8.6 per cent in October, taking the loss to $1.3 billion (both year-on-year) in these two months. Though the total goods exports to the US in H1 of FY26 (April–September) grew by 13.4 per cent, it moderated to 9.7 per cent for April–October. A part of this growth is due to accelerated exports ahead of the US tariff deadline (August 27).

Second, the growth in core IIP (eight infrastructure industries), which should be very robust because of a significant and consistent push for over a decade, fell to 2.9 per cent in H1 of FY26 — from 4.5 per cent in FY25. In October, it was 0 per cent, dragging down the core IIP growth during April-October 2025 to 2.5 per cent. The core IIP growth is progressively going down from 10.4 per cent in FY22 to 4.5 per cent in FY25, and now to 2.5 per cent (April–October).

Meanwhile, growth in industrial IIP (mining, manufacturing and electricity) fell to 3 per cent in H1 of FY26 – from 4 per cent in FY25 and 5.9 per cent in FY24. Private sector activity, according to the HSBC’s India Composite Purchasing Managers’ Index (PMI), expanded at its slowest pace in six months in November – manufacturing growth slipping to a nine-month low, offsetting the uptick in services.

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Third, net FDI inflows fell by -$622 million in September and by -$2.4 billion in October due to rising repatriation/disinvestment (profit booking or withdrawal). Although for the H1 of FY26, it is up at $7.6 billion (year-on-year), net FDI has tumbled from $43.9 billion in FY21 to $959 million in FY25 — an indication that India is not a favoured investment destination for global funds.

That is not all.

A national daily reported that US tariff-related uncertainties led to foreign companies pulling out of projects worth Rs 2 lakh crore in Q1 of FY26 — more than 1,200 per cent higher than the corresponding quarter of FY25.

Decrease in bank credit, private sector capex

Fourth, growth in bank credit outflows to the non-food sector — another indicator of investment — is slipping to 3.6 per cent in H1 of FY26 (year-on-year). This is a massive fall from 20.2 per cent in FY24 to 10.2 per cent in FY25. Similarly, growth in bank credit to industry is falling to 3.7 per cent in H1 of FY26 — from 7.3 per cent in FY25 — and to that of large industry to -0.1 per cent from 2.4 per cent in FY25.

Private corporate capex (realised or actual) has remained tepid for many years; its growth fell to 0.5 per cent in constant prices and 0.3 per cent in current prices in FY24 (up to which data is available).

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But here is another shocker.

Fifth, a business daily reported that the domestic private sector pulled out their investment plans worth Rs 14.3 lakh crore in Q2 of FY26 — which has steadily climbed up for the fourth consecutive quarter (from Q3 of FY25 to Q2 of FY26). This surpassed the previous high dropout of Rs 13.4 lakh crore in Q4 of FY19.

Window-dressing by RBI, Finance Ministry

Private corporate investment plans or “envisaged capex” is often quoted by the RBI — particularly after it went down from FY08 — to show that growth impetus is robust. The latest RBI bulletin says the cost of projects sanctioned by banks in Q2 “surged over the previous quarter pointing to improved investment”. It also said funds raised through external borrowings (ECBs) and IPOs “also increased” in Q2.

But it conveniently forgot foreign and domestic companies reaching new highs in dropping their projects and investment plans. When the bulletin says it hopes for “a virtuous cycle of higher private investment”, it sounds hollow.

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In fact, hoping for a “virtuous cycle” to “crowding in” of private investment and “green shoots” in private investment are just window-dressing in the monthly reports of the RBI and Finance Ministry to cover up falling demand.

Sharp fall in wages, rupee value

Sixth, the SBI Research’s November report shows a sharp fall in wages in FY26 — nominal wages falling from 6 per cent in FY25 to 2 per cent in FY26 and real wages falling from over 1 per cent to near zero in the same period.

Seventh, the rupee keeps tumbling down. It has been the worst-performing Asian currency this year, falling by 4.2 per cent against the USD; it touched a new low of 89.5 per USD last Monday, before the RBI intervened. Yet, it remains over 89 per USD.

Fundamental weaknesses

What all of the above reflect are fundamental weaknesses that can’t be wished away:

(i) Deficit demand, despite the GST cut, explaining the slowdown in industrial production, bank credit outflows.

(ii) Growth outlook is pessimist, explaining the flight of FDIs, foreign and domestic companies pulling out investment plans, and the rupee tumbling down more than its Asian counterparts vis-à-vis the USD.

(iii) The US tariff is hurting Indian exports and growth prospects.

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To sum it up, the RBI bulletin may wish for “a virtuous cycle of higher private investment, productivity, and growth, leading to long-term economic resilience”, but the ground realities point to stalling growth.