India’s economy expanded 8.2% y-o-y in July-September, beating all major forecasts and rising from 7.8% the previous quarter, according to a government statement. The lion’s share of the upturn in 2Q was driven by private consumer spending — nearly 57% of GDP — which grew 7.9%, supported by tax cuts on mass-consumption goods implemented in late September this year.

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Manufacturing output climbed 9.1%, versus 7.7% in the previous quarter. Construction cooled to 7.2% from 7.6% in 1Q, still strong but losing pace. Capex momentum continued despite global trade turbulence and the US doubling punitive tariffs on Indian exports to 50% in August.

Government spending was the only segment that actually fell, contracting 2.7% y-o-y and reversing 7.4% expansion in 1Q — the sharpest drag on India’s GDP. However, authorities expect firm demand, stable public investment, and easing inflation to support growth into FY 2026. Retail inflation fell to a record 0.25% in October, raising the likelihood of a rate cut at the Reserve Bank of India’s upcoming December review.

Sectors driving growth beyond consumption and manufacturing include:

  • The secondary sector, which climbed 8.1%, as well as the tertiary sector which rose 9.2%, jointly lifting 1H GDP to 8.0%;
  • Financial, real estate, and professional services grew 10.2% y-o-y, one of the strongest contributors in the services economy;
  • Agriculture and allied activities rose 3.5%, providing baseline stability despite erratic weather conditions;
  • Information and communication services expanded 5.3% in 1H and 7.4% in 2Q;
  • Electricity, gas, water supply, and utilities went up 4.4%, moderating but still supportive.

Beyond the fine print: India’s macro picture suggests the economy is leaning more heavily on domestic engines to fight off external volatility, as robust consumption and manufacturing mask weak exports and a dip in public spending. October’s record-low inflation could allow policymakers rare room to ease rates just as US tariffs and a weakening INR tighten external outcomes.

The next pivot: India’s growth streak now depends on whether strong domestic demand can keep outweighing surmounting trade pressure as government support cools.

BACKGROUND- While a Reuters poll had forecast 7.3% expansion for the quarter, State Bankof India was bullish, projecting 7.5% real GDP growth for 2Q of FY 2026 on strengthening investment, recovering rural demand, and resilient services and manufacturing.

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