India's economy has showcased remarkable resilience and growth in the second quarter of the fiscal year 2025-26, with the Gross Domestic Product (GDP) expanding by a significant 8.2% year-on-year. This growth rate, the fastest in six quarters, comfortably exceeded market expectations and projections by the Reserve Bank of India (RBI), which had anticipated around 7% growth.
The strong economic momentum is broad-based, with substantial contributions from key sectors. Manufacturing output surged by 9.1%, while the construction sector grew by 7.2%. The tertiary sector, including financial, real estate, and professional services, also registered robust growth, climbing by 9.2% overall, with financial services topping 10.2%. Private consumption, which accounts for roughly 57% of GDP, increased by 7.9%, driven by factors such as tax cuts on everyday goods and pre-festival stocking.
A notable highlight accompanying this growth is the sharp softening of inflation. The Consumer Price Index (CPI) eased to a record low of 0.25% in October 2025, the lowest in the current series. This was primarily supported by declining food prices and rationalization of Goods and Services Tax (GST) rates. This subdued inflation environment provides potential room for the RBI to consider further monetary policy adjustments, though the strong growth figures might complicate immediate rate cut decisions.
The industrial sector also demonstrated strengthened activity, with the Index of Industrial Production (IIP) rising by 4% in September 2025, led by growth in manufacturing, basic metals, electrical equipment, and automobiles. However, industrial production growth slowed to a 13-month low of 0.4% in October 2025, due to underperformance in power, mining, and manufacturing sectors. The labor market remained resilient, with participation reaching a six-month high of 55.4%.
India's external sector performance remained steady, with cumulative merchandise and services exports rising by 4.84% in FY26 (April-October 2025). Services exports expanded by nearly 10%, highlighting India's competitiveness in technology-led segments. This export growth occurred despite new tariffs imposed by the US on Indian exports, with India diversifying its export destinations to regions like the Gulf, Europe, Africa, and East Asia.
Government reforms, including GST 2.0, Production Linked Incentive (PLI) schemes, new credit guarantee measures for exporters, and large-scale skill and employment initiatives, are reinforcing this growth environment. The German Ambassador to India, Philipp Ackermann, described India's 8.2% GDP growth as "very impressive," stating that it makes India an even more interesting country for investment and a stable economic partner in the region.
Despite the impressive growth figures, the International Monetary Fund (IMF) has assigned a "C" grade to India's national accounts, citing methodological weaknesses such as outdated base years, price deflators, and data granularity. This has sparked a debate over the accuracy of the reported growth figures. Indian authorities acknowledge the need for improvements in the statistical framework and are undertaking an overhaul of their systems to update GDP calculation base years and enhance data collection methods.
In the financial markets, Indian equity benchmarks showed mixed movements. The Nifty 50 ended marginally lower on December 1, slipping 0.10% to close at 26,175.75, while the Sensex also closed slightly lower. However, both the Nifty 50 and Bank Nifty had achieved new all-time highs earlier in the week, indicating underlying bullish momentum supported by domestic institutional buying. The Indian rupee weakened to 89.47 against the US Dollar. India's fiscal deficit stood at Rs 8.25 lakh crore during April–October 2025, reaching 6% of the FY 2025-26 target. Additionally, India's forex reserves declined by USD 4.472 billion to USD 688.104 billion during the week ended November 21, 2025, mainly due to a sharp fall in gold reserves.