India's economy demonstrated remarkable resilience by growing at 7.3% during the second quarter of the financial year 2025-26 (July-September), according to economists' estimates, maintaining its position as the world's fastest-growing major economy despite significant global challenges.
Economic Performance Exceeds Expectations
The latest growth figure, while slightly lower than the 7.8% expansion recorded in the first quarter, surpassed the Reserve Bank of India's projection of 7% made during its October monetary policy review. This robust performance comes despite facing multiple headwinds, including global trade policy uncertainty and the full impact of 50% US tariffs on Indian exports imposed by American President Donald Trump in August.
Kaushik Das, India chief economist at Deutsche Bank, noted that "GDP will benefit from a lower base and an exceptionally low deflator, which will artificially prop up real GDP growth... But nominal GDP growth will likely continue to be weak."
Key Drivers and Sectoral Performance
The economic expansion was primarily supported by robust government fiscal expenditure and increased agricultural sector spending, according to a Reuters survey of economists. Consumer spending, which accounts for approximately 60% of India's economic activity, showed improvement driven by increased rural expenditure following better agricultural production.
However, the survey highlighted concerns about unbalanced development, with urban consumption and private sector investments showing limited growth. Dhiraj Nim, economist at ANZ, pointed out that "Unfortunately, GST cuts have come at a time when Indian households are already heavily indebted. That takes away part of the disposable income they could otherwise have saved from the tax reductions."
Outlook and Global Context
The International Monetary Fund has projected a full-year GDP growth of 6.5% for India, while the RBI remains optimistic about the country's economic prospects. In October, RBI governor Sanjay Malhotra stated that "economic activity has remained resilient with growth of real gross domestic product surprising on the upside" and projected annual growth at 6.8% for FY26.
Despite foreign investors withdrawing a net $16 billion from Indian equity markets this year, India continues to outperform other major economies. The country is poised to become the world's third-largest economy in the coming years, overtaking Japan and Germany, trailing only the United States and China.
Looking ahead, the recent GST rate cuts are expected to boost domestic consumption in subsequent quarters, potentially cushioning the impact of external trade challenges. The central bank is also anticipated to cut the repo rate by 25 basis points in its upcoming policy review, providing further stimulus to the economy.
