An 8.2% GDP growth in the quarter ending September and an 8% growth in the first half of the fiscal year are unambiguously good numbers as far as the economy is concerned. This underlines the inherent robustness of the Indian economy at a time when the global economy is in a funk, and India has had to weather quite a few disruptions in its external economic engagements. The fact that this growth has come at a time when inflation is lower than normal — more on this later —also shows that the economy is anything but overheated at the moment. This is good news again.
What is driving this growth? The short answer is a growth boost in manufacturing and services on the production side. Services are clocking very close to double-digit growth, and manufacturing is slipping along at more than 7%. Once again, this is extremely encouraging. So, is there anything in the GDP numbers that does not call for an outright celebration? Three things need to be flagged here.
One, some of the boost could be statistical because of low inflation and, therefore, the GDP deflator ends up much lower. This statistical tailwind will weaken going forward, and the annual growth number is likely to end up below what it is in the first half. Two, some of the growth boost could be on account of one-time tailwinds to growth rather than a structural upgrade of the Indian economy’s growth prospects. The 2025-26 Union Budget gave a consumption boost via income tax cuts. This was followed by another boost via a reduction in Goods and Services Tax rates on most commodities. It should not surprise that domestic private consumption is the primary driver of growth from the expenditure side. To be sure, the September quarter only factors in a week of the GST tailwind. Three, while the real rate is extremely impressive, the economy will have to deal with the effects of sub-par nominal growth, which is clocking just 8.7% for the first half of the fiscal year. Nominal growth is the base for revenue collections and debt servicing and also matters when it comes to business earnings. Managers, both at the finance ministry and those running businesses, would do well to brace for the headwinds from lower nominal growth this year.
These concerns aside, the latest GDP numbers do point to a healthy state of economic activity, which could, with careful policy intervention, embark on a higher growth path in both the near term and the medium term. That’s a good position to be in.
{{/usCountry}}These concerns aside, the latest GDP numbers do point to a healthy state of economic activity, which could, with careful policy intervention, embark on a higher growth path in both the near term and the medium term. That’s a good position to be in.
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