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01 Dec 2025
India's economic growth has shown a remarkable performance, clocking a stellar 8.2% growth rate, surpassing all estimates. Despite a bleak global backdrop, the economy has sustained momentum from the previous quarter, demonstrating the effectiveness of the government and Reserve Bank of India's efforts to propel the economy forward.
The growth is attributed to a strong performance from various sectors, including manufacturing, which recorded a growth of over 9%, and construction, which showed a growth of more than 7%. Private consumption also picked up pace, recording a growth of close to 8% due to tax cuts that bolstered consumer confidence.
However, mining and quarrying was the only sector that reported a deceleration in the second quarter, due to the impact of the monsoon season. Ministry of Statistics and Program Implementation (MoSPI) Secretary Saurabh Garg explained that this was expected, given the monsoon season during this period.
The salubrious effects of low inflation and lower taxes have left more money in consumers' pockets, boosting discretionary spending. India recorded its lowest inflation in the current series at 0.25% for the month of October. Retail inflation has been trending downwards, with low food inflation stoking discretionary spending.
Experts note that the income tax tweak announced in this year's Budget laid the foundation for a blockbuster year for the economy, bringing cheer to India's middle class. The GST cuts that came into effect on September 22 have also added to the euphoria, slashing prices for many items and aiding sentiment among India's large consumer base.
The RBI brought interest rates down by 100 basis points to safeguard the economy from external headwinds. The repo rate now stands at 5.5%, with experts penciling in another 25 basis points rate cut for the current fiscal. The RBI governor noted that there is room for another rate cut, but it will wait and watch for the measures already taken by the government and the monetary authority to play out.
CRISIL has raised India's GDP growth forecast to 7%, up from 6%. The second half growth is expected to slow down to 6.1% on the back of US tariffs and normalization of government expenditure. However, experts expect private investments to pick up pace, even as government expenditure stabilizes.
However, there are concerns about nominal GDP growth, which printed a dismal four-quarter low of 8.7% due to significant moderation in inflation. This poses a challenge for tax collection targets for the fiscal year.
Experts note that an adverse base, the potential negative impact of US tariffs, and limited headroom for capital spending by the Government of India may dampen the pace of growth from the robust 8.0% seen in H1 FY2026.
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