India's GDP growth seen at a strong 7% in Q2 FY26: Report

India’s economic growth is expected to remain robust in the second quarter of FY26, with GDP projected to expand 7 per cent compared with 7.8 per cent in Q1, according to an assessment released on Monday, November 17. The report signals continued resilience in the economy, driven by a pick-up in industrial activity even as services and agriculture moderate.

Gross value added (GVA) growth is estimated at 7.1 per cent for Q2, a slight dip from 7.6 per cent in the April–June period. The report noted that the moderation in services to 7.4 per cent from 9.3 per cent and agriculture to 3.5 per cent from 3.7 per cent is expected to offset the stronger performance of the industrial sector.

ICRA said industry is likely to post its best growth in five quarters at 7.8 per cent, up from 6.3 per cent in Q1, supported by inventory stocking ahead of the festive season, GST rationalisation effects and early export dispatches to the United States before tariff changes kick in.

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What factors are shaping Q2 GDP expectations?

The report pointed to a contraction in net indirect taxes in nominal terms during Q2, following a 9.5 per cent rise in Q1. Indirect taxes fell to –5.2 per cent from 11.3 per cent in the previous quarter, while subsidies contracted at a slower pace. This is expected to push the GDP–GVA growth gap back into negative territory by about 10 basis points, reversing the positive spread seen in Q1.

Aditi Nayar, Chief Economist at ICRA, said a lower year-on-year rise in government spending is also likely to weigh on headline growth. However, she noted that manufacturing momentum appears strong due to front-loaded production, improved demand from GST rate alignment, and higher order flows.

Capital expenditure trends indicate steady momentum

The pace of gross capital expenditure growth eased to 30.7 per cent in Q2 from 52 per cent in Q1, mainly due to a high base. Even so, average monthly capex rose to Rs 1,019 billion in Q2 from Rs 917 billion in Q1, pointing to sustained infrastructure spending.

Separately, monthly average capex for Q2 stood at Rs 544 billion, higher than the Rs 378 billion recorded in the previous quarter, with the report noting that private and public investments together continue to support the overall capex environment.