India’s Q2 GDP Grows 7.3% on Rural and Government Spending

Based on the Reuters poll of economists, India's economy grew 7.3% in the second quarter, from July to September. India's GDP (Gross Domestic Product) growth was supported by strong rural and government spending, even as private capital spending remained low. In the previous quarter, household spending, which accounts for about 60% of the economy, grew as rural spending increased due to higher agricultural output. However, urban demand and private investment remain weak, suggesting that growth in Asia's third-largest economy is not uniform. Government spending, which has helped the economy grow in recent years, is likely to have continued in the second quarter of this fiscal year.

India is still one of the world's fastest-growing major economies, despite the US President Donald Trump's tariffs on Indian goods, which rose to 50% in August. This decision has led to foreign investors pulling out a net $16 billion from Indian equity markets so far this year. Most economists believe that the deflator, which removes inflation to show "real" economic growth, was likely very low. This makes Asia's third-largest economy appear stronger than it actually is.

Based on the median forecast from a Reuters poll of 61 economists conducted November 18-24, the Indian GDP increased 7.3% year-on-year in the July-September period compared to the same period last year. This growth is slower than the previous quarter's growth of 7.8%, which was better than many experts expected. The economists' growth estimates ranged from 6.0% to 8.5%.

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The India Chief Economist, Kaushik Das, said at Deutsche Bank, "Private consumption and government spending on projects will be the primary factors driving growth now. However, private-sector investment is likely to increase more slowly due to ongoing global uncertainty'". The data is due on Friday, November 28, at 10:30 AM GMT.

Economists are being cautious about the medium-term outlook. They predict GDP growth will slow to 6.8% this quarter and 6.3% in the quarter ending in March 2026.

Analytical Boost

Several economists said that a low deflator that falls when inflation cools has also boosted the latest data, as it did in the last quarter. Deutsche Bank's Das said, "GDP may show growth due to a lower starting point and a very low deflator, which could temporarily increase real GDP growth. However, nominal GDP growth is expected to remain weak". Between July and September, wholesale price inflation was negligible and consumer inflation averaged around 2%. Since then, the inflation has dropped to less than half a percent.

Rajni Thakur, chief economist at L&T Finance, stated that inflation projections for the rest of the year will also remain soft. She also said, "We do not expect this deflationary pressure, which affects real GDP numbers, to go away until the end of this financial year".

Economic activity, measured by GVA (Gross Value Added), is estimated to have grown by 7.15%. Last quarter, nominal GDP growth, which does not account for price changes, likely slowed to 8.3% from 8.8% before, according to a poll. These estimates come from a smaller group of forecasters. Meanwhile, recent cuts to the consumption tax, part of a major update to the national goods and services tax (GST) system, began on September 22. These changes are expected to help increase demand in the next few quarters.

Dhiraj Nim, economist at ANZ, reported, "Indian households are already in heavy debt. Unfortunately, the recent GST cuts have come at this difficult time. As a result, these tax reductions provide less disposable income for families to save."

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