India's GDP grew by 7.3% in the July–September quarter, surpassing RBI's estimates. Rural demand, lower inflation, festive sales, and good rainfall provided b support to the economy. According to experts, full-year growth could be 6.9%.
Q2 GDP Update: India's economic pace in the July–September quarter has been better than expected. A Moneycontrol poll of 11 economists estimated that the country's GDP grew by 7.3 percent in Q2. This is higher than the Reserve Bank's estimate of 7 percent, indicating a positive improvement in the economy. According to experts, the growth rate for the entire fiscal year could be around 6.9 percent. Although growth is expected to slow down slightly in the second half, the performance of the first two quarters has been b.
Reasons for the Acceleration
According to experts, the main reasons for the sharp growth in this quarter are a better monsoon, a weaker base effect from the previous period, improved rural demand, and increased purchasing before festivals. Radhika Rao, an economist at DBS Bank, states that government spending, rural consumption, and softening inflation have boosted real incomes, strengthening GDP. She estimates that this quarter could show approximately 7.5 percent growth. She further explained that the full impact of GST rate cuts will be clearly visible in Q3 as the changes were implemented at the end of September.
Barclays' View
Aastha Gudhwani, Chief Economist at Barclays, stated that good rainfall and better sowing of the Kharif crop supported the economy. However, she maintains a cautious stance on future demand as the pace of urban consumption is not stable.
Fall in Inflation and Expectation of Rate Cut
CPI inflation reached a multi-month low in October, leading several economists to lower their average inflation forecast for FY26 to 2.1 percent. 80 percent of economists polled believe that the RBI might implement a 25 basis point rate cut in its December policy. Aditi Nayar of ICRA stated that GST changes, stable food prices, and weaker inflation pave the way for rate cuts. According to experts, if inflation remains controlled, monetary policy could become more supportive.
Strong Improvement in Rural Areas
Gaura Sengupta of IDFC First Bank states that the surge in tractor and two-wheeler sales, improved wages, and a reduction in MNREGA demand indicate a recovery in the rural economy. In contrast, urban areas have seen a decline in passenger vehicle sales and a slight moderation in tax collection, signaling weaker urban demand.
Government Spending Supports Construction and Manufacturing
Rajani Sinha of CARE Ratings said that large-scale capital investment by the government has strengthened the construction and manufacturing sectors. However, she warned that US tax hikes and domestic fiscal discipline could create some pressure in the second half of the year. Paras Jasrai of India Ratings noted that slower growth in Nominal GDP could challenge the government's fiscal estimates.
Further Improvement Possible in Q3 from GST Cuts and Capex
Yuvika Oberoi of QuantEco believes that the impact of GST cuts and government capital expenditure in the third quarter will further strengthen GDP. Meanwhile, Abhishek Upadhyay of ICICI Securities stated that the loan burden on urban consumption, lower savings, and weak wage growth could show their effect.
