India's Economic Growth Surges to Six-Quarter High
India's economy demonstrated remarkable resilience as second-quarter GDP growth accelerated to 8.2%, marking the highest expansion in six quarters. This surprising performance has created significant anticipation ahead of the Reserve Bank of India's monetary policy committee meeting scheduled for December 5.
Diverging Views on Monetary Policy Direction
Economists are presenting nuanced interpretations of the growth data, with opinions divided on the appropriate monetary policy response. While strong growth typically signals potential overheating and warrants caution from central bankers, the current scenario presents a more complex picture.
Prasanna A from ICICI Securities Primary Dealership emphasized that "no overheating in the economy despite strong growth suggested by H1 growth numbers." He highlighted that inflation has consistently surprised on the downside, creating room for policy easing. The expert anticipates a 25-basis-point rate cut next week, followed by an extended pause, with the RBI shifting focus to banking system liquidity conditions that have tightened beyond expectations.
Analyst Perspectives and Economic Implications
Aastha Gudwani of Barclays cautioned against underestimating the growth surprise, stating that "for a forward-looking central banking... the GDP print today can't be ignored." She expects unchanged policy rates for now but predicts a dovish tone in December, alongside potential open market operations purchases. Gudwani also anticipates upward revisions to RBI's GDP projections and downward adjustments to inflation estimates.
Madhavi Arora from Emkay Global provided crucial context, explaining that the impressive growth revision "is largely because of a statistical boost due to a soft deflator of only 0.5%." She noted that nominal GDP grew at a more modest 8.7%, highlighting the discrepancy between real and nominal growth measures. Arora has revised her FY26 real growth estimate upward to 7.3%, significantly higher than previous projections, though she expects moderation to 6.7% in the second half of FY26.
The combination of very low inflation and weak nominal growth complicates fiscal and external assumptions, requiring recalibration of all macroeconomic and market variables according to Arora.
Soumya Kanti Ghosh of SBI observed that expectations for a shallow 25 bps rate cut have diminished following detailed analysis of the strong Q2 growth data. He suggests the choice appears tilted toward maintaining current rates in December policy, while emphasizing the importance of continuing affirmative actions outside policy space to shift market perceptions.
Radhika Rao from DBS Bank encapsulated the policy dilemma facing the MPC: "The MPC faces a challenging act... with the mix of a strong growth print and record low inflation." She expects the committee to justify further easing through forward-looking guidance and emphasis on real interest rates.
