What’s behind the shift in India’s GDP growth?

India’s economy has posted stronger-than-expected numbers for July to September, recording 8.2 percent growth. This is the fastest pace seen in six quarters and has once again placed India ahead of other major economies. With several factors contributing to this expansion, from increased consumption to buoyant industrial activity, here is a clear breakdown of what the latest data means.

Why has GDP growth risen to 8.2 percent?

India’s gross domestic product expanded by 8.2 percent in July-September, building on the 7.8 percent recorded in April-June. This performance meant India retained its position as the world’s fastest-growing major economy, according to official data released on Friday.

The rise came just before the festive season boost, supported by the implementation of a significant goods and services tax rate cut.

Although this growth figure reflects strong momentum, it does not fully account for the additional 25 percent punitive tariff imposed by the United States on Indian exports from August, which raised the total levy to 50 percent.

Compared to China’s 4.8 percent growth in the same period, the expansion was driven by stronger public investment, higher demand for services, increased industrial production and firm consumption. A low statistical base also played a part, as the economy grew at a below-average 5.6 percent in the same quarter last year.

Lower inflation offered further support. With both the Consumer Price Index and Wholesale Price Index easing during the second quarter, reduced food inflation encouraged more discretionary spending.

What has the government said about the growth figures?

Prime Minister Narendra Modi described the latest numbers as "very encouraging."

He said, "It reflects the impact of our pro-growth policies and reforms. It also reflects the hard work and enterprise of our people. Our government will continue to advance reforms and strengthen Ease of Living for every citizen," in a post on X.

Following his Independence Day announcement of a GST rate cut, factories increased their output to prepare for festival demand. The revised GST rates took effect on September 22.

Finance Minister Nirmala Sitharaman said the new GDP print highlights how reforms and fiscal consolidation have supported strong growth and momentum.

She noted, "Various high-frequency indicators also point to continued economic momentum and broad-based consumption growth."

She added, "The GDP estimates released today show the robust economic growth and momentum of the Indian economy. With a Real GDP growth rate of 8.2 percent for Q2 - FY 2025-26 (July-September), India is the world's fastest-growing major economy."

According to her, the growth has been powered by targeted public investment, fiscal consolidation efforts and reforms aimed at improving productivity and the ease of doing business.

The government, she said, remains committed to strengthening long-term economic momentum.

What do the latest sector numbers show?

Private consumer spending, which forms about 57 percent of GDP, rose by 7.9 percent in July-September, higher than the 7 percent rise in the previous quarter, according to National Statistics Office data.

Manufacturing grew by 9.1 percent compared to 7.7 percent in the preceding quarter and 7.6 percent in the same period last year. Construction increased by 7.2 percent, slightly lower than the 7.6 percent in the previous quarter. Government spending, however, declined by 2.7 percent in Q2 after growing 7.4 percent in the earlier quarter.

How is the outlook for the rest of the year?

Chief Economic Adviser V Anantha Nageswaran said the Indian economy is on track to cross USD 4 trillion in the current financial year.

India’s GDP stood at USD 3.9 trillion in FY25.

He said that with the economy growing 8 percent in the first half of FY26, the full-year GDP growth forecast is now 7 percent or slightly higher. The ongoing quarter has begun strongly, he added, with resilient rural demand and urban consumption strengthening after the GST rate cut.

Despite real GDP growth hitting 8.2 percent in Q2, nominal GDP growth was 8.7 percent. The gap between the two is the smallest since the third quarter of FY2020.

A low base and favourable deflator effects are expected to continue supporting growth in the current quarter. The GST rate cut has driven private consumption, while lower income tax and interest rates following RBI’s repo rate reductions have also given a lift.

What are economists saying about the numbers?

Crisil’s Chief Economist Dharmakirti Joshi said the GDP series is being revised to a new base year of 2022-23 instead of 2011-12, which will better represent the economy but may cause deviations from current estimates.

DBS Bank economist Radhika Rao said the influence of the deflator and low base can be seen in the nominal GDP figure, which remains below the budgeted pace. She said the RBI faces a complex situation at its December meeting due to the combination of strong growth and record-low inflation.

She said, "We expect an emphasis on forward-looking growth guidance and a high real rate buffer due to weak inflation, to justify a move to lower rates further."

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said single-digit nominal GDP growth shows underlying economic activity remains subdued.

She said, "Despite the high real GDP growth, we retain our expectations of a 25 bps rate cut in the upcoming policy as the inflation trajectory remains benign."

Vedanta Chairman Anil Agarwal described India’s economy as "amazingly resilient."

He said, "At a time of global headwinds, a growth rate of over 8 percent is very impressive. Domestic demand and deregulation can take it to double digits. We are continuously strengthening our position as the world's fastest-growing major economy."

Why is the base year being revised?

The Ministry of Statistics and Programme Implementation is revising the base year for National Accounts from 2011-12 to 2022-23. This will lead to changes in quarterly estimates due to updated data sources, methodological adjustments and revised benchmarks.

The ministry said, "Users should take these factors into consideration while interpreting the subsequent revised estimates. The next quarterly GDP estimates based on the New Series will be released on February 27, 2026."

PTI inputs