India’s Q2 GDP at 7.3% as Rural Demand and Capex Strengthen

India’s economy appears to have held firm through the second quarter of FY26, supported by a broad-based improvement in rural activity, stronger government capital spending, and early export dispatches. According to an Economic Times poll of twelve economists, quarterly GDP growth is expected to reach 7.3%, with estimates ranging from 6.9 to 7.7%.

GDP grew 7.8% in the April–June period, the fastest in five quarters, and is now set for another strong print. The previous year’s September quarter saw 5.6% growth, marking a clear shift in momentum. As India heads toward the official data release on November 28, the broader narrative continues to lean toward resilience despite global and domestic headwinds.

What Is Driving the Q2 Growth Momentum?

Most economists believe Q2 growth accelerated due to a combination of stronger rural demand, government investment, and stabilising consumption. CareEdge Ratings’ Chief Economist Rajani Sinha said the quarter showed “a sustained recovery in economic momentum,” highlighting support from agriculture, manufacturing, and construction as seen in real-time data.

Yuvika Singhal of QuantEco Research noted that demand firmed up across both rural and urban areas. She pointed to moderating inflation, rising rural wages, favourable crop conditions, income tax relief measures, and the delayed impact of earlier monetary easing as key factors. This helped cushion the economy against excessive rainfall, higher US tariffs, and spending delays ahead of expected GST rate cuts in September.

A significant contributor to the quarter’s activity was pre-festive stocking by consumer-facing sectors. This was further amplified by the GST restructuring that came into effect on September 22. The shift to a simplified two-rate structure of 5% and 18% lowered tax incidence on several household goods and electronics, lifting sentiment and aiding purchases.

Economists believe these tailwinds together helped offset the drag from weather disruptions, shifting global demand, and tariff uncertainty.

How Did Industry and Government Spending Support Growth?

Industrial activity showed clear improvement compared with last year’s levels. The Index of Industrial Production averaged 4.1% growth during the September quarter, up from 2.7% a year earlier. Manufacturing output expanded 4.9%, compared to 3.3% last year, signalling firmer production pipelines and healthier demand from core sectors.

Government capital expenditure rose 31% in the quarter. Although this was slower than the 52% surge in Q1, it remained stronger than the 10% growth recorded in the same quarter last year. The spending push supported construction, road projects, and heavy engineering demand.

Exports also aided Q2 performance. Merchandise exports grew 8.8%, reversing a 7% contraction in the same period last year. Economists attribute this largely to front-loaded shipments ahead of higher US tariffs on select Indian goods, including a 50% duty and an additional 25% penalty on Russian oil-linked products.

Nomura’s India economist Aurodeep Nandi said a trade deal with the United States could bring tariff levels closer to broader Asian benchmarks, offering some relief to India’s outbound sectors.

Is India’s Growth Outlook Still Strong for the Year?

For FY26, economists project GDP growth at a median of 6.9%, with forecasts between 6.3 and 7.4%. The Reserve Bank of India expects 6.8%, while the World Bank and the IMF project 6.5% and 6.6%, respectively.

Domestic demand is expected to stay supportive through the third quarter, aided by GST-led pent-up consumption. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, believes the underlying activity is likely to remain strong until Q3. However, she cautioned that the durability of consumption beyond Q4 and the outlook for global trade remain areas to watch.

Higher US tariffs remain a key risk for India’s external sector, particularly for engineering goods, chemicals, textiles, and oil-related shipments. Even so, rising government investment and steady household consumption may help counterbalance these external pressures.

Despite the uncertainties, India is expected to stay one of the fastest-growing major economies in the world through FY26, supported by stability in macro indicators and ongoing policy support.

Conclusion

India’s September quarter growth is expected to print at 7.3%, supported by stronger rural demand, improved manufacturing output, and front-loaded export activity. Government capital spending added further strength, making Q2 another robust period for the economy. As the country approaches the remainder of FY26, domestic consumption, global trade risks, and policy clarity will shape the next leg of momentum.

With India maintaining a strong trajectory amid global uncertainty, the key question now is whether this pace can be sustained into the final quarters of the year?

References:

Economic Times