India’s Q2 FY 2025-26 GDP Growth

 

 India’s Q2 FY 2025-26 GDP Growth 

🔹 Key Data Highlights

Indicator	Q2 FY26	Q1 FY26	Q2 FY25	Remarks
Real GDP Growth	8.2%	7.8%	5.6%	Six-quarter high
H1 FY26 Average Growth	8%	—	—	Government revises full-year forecast to 7%+
Nominal GDP Growth	8.7%	—	—	Lower than expected

➡️ Previous higher growth: Q4 FY24

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🔹 Growth Drivers

1. Manufacturing Sector

   • Growth: 9.1% (Six-quarter high)

   • Driven by:

     • Strong corporate earnings

     • Low base effect (previous: 2.1%)

2. Services Sector

   • Overall: 9.2%

   • Sub-sectors:

     • Financial, Real Estate & Professional Services: 10.2% (Nine-quarter high)

     • Public Administration, Defence & Other Services: 9.7%

       • Growth is surprising as government non-interest revenue expenditure contracted ~11.2% YoY

3. Agriculture

   • 3.5%, lower than last year’s 4.1%

   • Risks: monsoon dependence + rural demand weakness

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🔹 Government & Expert Views

Perspective	Key Points
Chief Economic Adviser	Growth momentum from stable inflation + public capex + reforms
PM Modi	Growth reflects pro-growth policies & people's hard work
Economists’ Concerns	Low nominal growth indicates tepid underlying demand

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🔹 Fiscal Concerns

• Fiscal deficit target: 4.4%

• Assumed nominal GDP growth: 10.1%

• Actual 8.7% → Shortfall may challenge fiscal consolidation

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🔹 Political & Institutional Context

• Congress flagged the IMF’s ‘C’ rating for India’s national accounts methodology

• IMF kept the rating  same as the previous year

• Highlights concerns over data reliability/measurement

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🧠 Why Real vs Nominal Gap Matters?

• Real GDP is high → output increasing

• Nominal low → price growth subdued → reflects:

  • Weak consumption/demand

  • Lower tax revenue base → fiscal stress

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🔍 UPSC Prelims Possible Questions

1. Consider the following:

   • Low base effect

   • Corporate profitability

   • Public capex
     Which of the above contributed to manufacturing growth in Q2 FY26?
     (a) 1 & 2 only (b) 2 & 3 only (c) 1, 2 & 3 (d) 1 only

2. A lower GDP deflator would usually lead to:
   (a) Higher nominal growth
   (b) Lower nominal growth relative to real growth
   (c) Higher inflation
   (d) Higher consumption

3. Which sector recorded the highest sub-sectoral growth in Q2 FY26?
   (a) Agriculture (b) Manufacturing (c) Financial + Real Estate (d) Mining

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📝 Mains Answer-Writing Pointers

Q. Examine the significance and risks associated with India’s high real GDP growth in Q2 FY2025-26.

Structure:

• Intro: 8.2% real GDP as a six-quarter high

• Body:

  • Drivers: manufacturing + services vs low agriculture

  • Risks: weak nominal growth → fiscal deficit challenges

  • Base effect + uneven recovery + rural slowdown

• Conclusion: sustaining growth requires boosting private investment and consumption

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✨ Value-Addition Lines for Mains

• “Recovery is K-shaped with strong formal-sector growth but rural strain.”

• “High real but low nominal growth indicates deflator compression — not a broad-based demand revival.”

• “Public capex remains the primary growth engine; private investment is still hesitant.”