India’s economy posted stronger-than-expected performance in the second quarter of FY26, supported by a sharp rise in private consumption and steady investment activity. According to a report by CareEdge Ratings, income tax cuts, GST rationalisation, easing inflation and an early festive season pushed private final consumption expenditure to 7.9 per cent in Q2, marking one of the strongest drivers of growth.
Gross fixed capital formation expanded by 7.3 per cent during the quarter, aided by continued public capital expenditure. Though investment momentum moderated slightly, the report noted that capital formation remained at a healthy level and continues to support the broader recovery.
CareEdge Ratings expects growth to ease to around 7 per cent in the second half of FY26, after averaging nearly 8 per cent in the first half. The full-year GDP growth projection has been placed at 7.5 per cent. A low base from the previous year and a favourable deflator also contributed to the higher headline growth number.
On the global front, the rating agency highlighted a shift toward deflationary pressures, which has opened the door for rate cuts in several advanced and emerging economies. While Japan and Brazil raised rates to combat inflation, central banks in the US and UK opted for rate cuts to support growth despite ongoing price pressures.
The report also noted that the US Dollar Index weakened due to uncertainty around US trade policy, rising fiscal concerns and expectations of further Federal Reserve rate cuts. Structural trends, including increased gold purchases by global central banks, added additional downward pressure on the dollar. As a result, several major currencies have strengthened against the dollar this year, supported by softer US yields and diversification into non-USD assets.
Domestically, monetary policy turned more accommodative as the central bank lowered inflation projections for FY26 and the first half of FY27, while raising its GDP forecast for FY26 to 7.3 per cent.
Earlier assessments this month suggested that emerging markets will remain the primary drivers of global growth in 2026, contributing nearly two-thirds of the expansion. Emerging economies are expected to grow at 4.4 per cent, significantly outpacing advanced economies, which are projected to grow at 1.5 per cent.
