India’s economic performance held firm in the second quarter of FY26, with growth estimated at 7.30%, according to a Reuters poll of economists. The expansion was largely supported by a revival in rural consumption and consistent government spending, both of which helped steady the economic landscape during a period of global volatility. Household spending—representing nearly 60% of India’s economic activity—picked up pace as agricultural output improved, giving rural families more purchasing power and driving essential demand.
While rural indicators strengthened, the urban economy displayed a more cautious tone. Demand in cities remained relatively tepid, and private sector investment continued to lag as companies waited for clearer global signals before committing to fresh capital expenditure. The poll also indicated that the headline GDP number marked a slight cooldown from the 7.80% growth recorded in the previous quarter. This slowdown was attributed partly to an unusually low deflator, which temporarily inflated real GDP calculations despite moderate underlying activity.
India’s financial markets also faced turbulence during the quarter. The United States imposed a 50% tariff on selected Indian exports in August, prompting foreign investors to pull out nearly $16 million from Indian equities. Even with this setback, economists emphasized that India remains one of the fastest-expanding major economies globally, with momentum driven by domestic engines rather than external demand.
Looking forward, economists foresee a gradual easing in the growth trajectory. Projections from the survey place Q3 FY26 growth at 6.80%, with a further dip to 6.30% expected in Q4. The moderation is likely to be influenced by extremely low inflation rates. Wholesale inflation was nearly flat through Q2, and consumer inflation held close to 2%, pushing nominal GDP growth lower even as real GDP remained resilient.
A recent Goods and Services Tax reduction on 375 items, effective from September 22, 2025, is expected to lift consumer sentiment in the coming months. However, analysts note that the benefits may be tempered by rising household debt levels, which continue to limit discretionary spending in some segments.
Gross Value Added (GVA) for Q2 is projected at 7.15%, signaling steady economic activity beneath the surface. Still, private investment remains cautious, influenced by global uncertainty and elevated borrowing costs. Economists believe that domestic consumption and state-led spending will remain key pillars as India navigates the second half of the fiscal year.
