India’s economy delivered a surprisingly strong performance in the July–September quarter, with GDP rising 8.2 percent year-on-year, a sharp jump from 5.6 percent in the same period a year earlier and well above most market forecasts. The growth acceleration signals a clear recovery from the softer momentum seen earlier in the fiscal year, underscoring resilience in parts of domestic demand while also revealing persistent weaknesses in investment and urban consumption.
The expansion was primarily powered by a broadening of rural demand. Higher agricultural output, steady farm incomes and improving labor market conditions across rural districts strengthened private consumption, which remains a core pillar of India’s GDP. The demand uplift in villages and small towns translated into better volume growth for sectors tied to mass consumption, including two-wheeler sales, fast-moving consumer goods, fertilizers, construction materials and rural credit. This rural rebound offset tepid discretionary spending in urban centers, where consumption remained constrained by uneven wage growth and high household leverage in parts of the middle-income segment.
The economic growth showed in the latest data from the National Statistics Office (NSO) also surpassed the estimates of many economists.
The strong performance is also largely attributed to the boost in the manufacturing sector, growth in rural demand and significant growth in the secondary sectors. Manufacturing sector grew by more than four times in this sector rising 9.1 percent in this quarter, which previously stood at 2.2 percent a year ago. Construction followed a significant growth of 7.2 percent.
"Manufacturing growth expectedly printed at a strong 9.1 percent in Q2, up from 7.7 percent in Q1, aided by an uptick in volume growth as reflected in the manufacturing IIP data, as well as a favourable base. The latter also supported an improvement in the electricity and mining prints relative to Q1," said Aditi Nayar, chief economist at rating agency ICRA.
The Q2 GDP growth also beats most estimates as analysts had predicted the economy to grow at 7-7.3 percent during the July -September quarter.
According to the median forecast from a Reuters poll of 61 economists conducted November 18–24, GDP expanded 7.3 percent year-on-year in the July–September period, down from a better-than-expected 7.8 percent in the previous quarter. Strong rural demand and government expenditure are supposed to be the drivers even as private capital spending remained subdued.
Household consumption, which accounts for roughly 60 percent of the economy, strengthened in the previous quarter as rural spending improved on better agricultural output. However, the urban demand and private investment continued to lag, suggesting uneven growth.
In absolute terms, the real GDP for Q2 of FY 2025-26 is estimated at Rs 48.63 lakh crore, up from Rs 44.94 lakh crore in the same quarter last year. The Nominal GDP for the quarter witnessed a growth of 8.7 percent as it is estimated at Rs 85.25 lakh crore.
A second decisive driver came from the government, which front-loaded spending earlier than anticipated. Public capital expenditure on highways, railways, housing and urban infrastructure, combined with higher revenue outlays, injected momentum into services, construction and manufacturing supply chains. This spending cycle supported order books for cement, steel, logistics, industrial equipment and public sector-driven services contracts, cushioning the slowdown in corporate investment.
India also benefited from early export shipments that lifted trade activity in the quarter. Several manufacturers accelerated deliveries to lock in orders ahead of potential tariff shifts in key markets and evolving global supply chain realignments. This timely external demand boost reflected positively on industrial output and inventory building, contributing to GDP through higher goods production and trade services. Meanwhile, inflation remained benign in the quarter, which had a statistical amplifying effect on real GDP, as stable or modest nominal growth appeared stronger once adjusted for favorable price deflators.
Despite the headline optimism, underlying concerns continue to shape the growth narrative. Private sector capital expenditure remained sluggish, reflecting caution among corporates that are balancing stretched valuations, uneven credit demand and slower urban sales trends. The lack of a sustained capex cycle means the current growth is more reliant on fiscal support and rural consumption rather than organic investment-led expansion. Urban demand also trailed the recovery, especially in segments linked to higher-end consumption such as real estate in premium micro-markets, passenger vehicle demand, retail footfall for discretionary brands and new project announcements in private infrastructure. The combination of subdued urban consumption and cautious corporate spending raises questions about the durability of this strong real growth once government spending normalises.
Market analysts interpreted the quarter as a tale of divergence. Core consumption in rural India and public sector spending provided the economy with its strongest anchors, while private investment and urban demand are yet to show a convincing rebound. For the next few quarters, sustaining growth at elevated levels will require a material pickup in nominal GDP, wage momentum in cities, and a revival in corporate confidence toward new capacity building. Policymakers, while encouraged by the Q2 resilience, are expected to maintain a supportive fiscal stance in the short run, but long-term stability hinges on shifting the growth composition toward private investment and more balanced urban participation.
The Q2 FY26 print, while impressive, therefore serves both as a marker of India’s ability to bounce back and a reminder of the structural challenges that remain unresolved. The recovery has breathing room, but not yet broad symmetry, making the next phase of growth dependent on investment revival and demand normalisation beyond the countryside and government balance sheets.
