2QFY26 GDP: Strong numbers, soft spots, and a credibility question

India’s growth 2QFY26 surprised positively with 8.2% real GDP growth print, up from 5.6% a year ago. On the face of it, this is an impressive print—broad-based, investment-driven, and supported by a healthy services backbone, and steady private consumption; though, a few familiar questions on data quality, especially after the IMF’s recent downgrade of India’s statistical credibility to Category C, cast some cloud on sustainability.  

A broad-based GDP beat

As per the official release real GDP for Q2FY26 is estimated at ₹48.63 lakh crore, growing 8.2% YoY, while nominal GDP rose 8.7%.

Growth drivers

·         Manufacturing (9.1%) and Construction (7.2%) carried the secondary sector, delivering an aggregate 8.1% GVA growth.

·         Tertiary sector GVA expanded 9.2%, led by:

Financial, real estate & professional services: 10.2%

Public administration & defence: 9.7%

·         Agriculture slowed to 3.5%, consistent with weaker output indicators and a patchy monsoon.

Demand side

·         Private consumption (PFCE) grew 7.9%, reflecting steady urban spending and improving mobility indicators.

·         Gross fixed capital formation (GFCF) grew 7.3%, maintaining investment momentum.

·         Government consumption (GFCE) contracted 2.7%, likely reflecting fiscal consolidation ahead of FY26’s second-half.

H1FY26 perspective

For April–September, GDP rose 8.0% versus 6.1% last year, marking India’s strongest two-quarter stretch in almost three years.

Sector story: Services lead, manufacturing rebounds, agriculture & utilities soft

A deeper look at the GVA table shows a familiar pattern:

·         Services contribute ~60% of nominal GVA, and continue to anchor overall growth.

·         Manufacturing showed genuine buoyancy, supported by strong corporate earnings in Q2 and better IIP manufacturing prints.

·         Construction sustained high growth, mirroring cement and steel consumption trends.

·         Agriculture and utilities remain soft spots, with structural drag from low commodity pricing, erratic weather, and weak rural demand.

Red Flags Worth Noticing

Imports outpace exports

Imports grew 12.8%, much faster than export growth of 5.6%, which typically subtracts from GDP via net exports—even though aggregate GDP still expanded strongly.

Discrepancies surge again

Statistical discrepancies—as shown in the expenditure tables—remain unusually large (₹1.62 lakh crore in Q2), indicating material gaps between the production and expenditure approaches. This has become a recurring feature of quarterly GDP releases.

c) Public Capex vs. Private Capex

While investments remain strong, the composition still leans heavily on the government side. Private capex recovery remains modest outside listed corporates.

Some doubts over sustainability

In parts, the high real growth number may be due to some temporary phenomenon, e.g., benign deflator, GST cuts, lower base, etc. It is, therefore, likely that this high growth rate might not sustain and normalize to a more realistic 6.5-7% range in coming quarters.

The IMF’s "Category C" call: Does it shake the story?

In a recent assessment, the IMF downgraded the quality of India’s national statistics to “Category C”, its second lowest classification. This category signals weak methodological transparency, limited data accessibility, inconsistent revisions, and heavy reliance on indirect indicators rather than direct measurement.

This matters because:

·         India’s GDP is partly extrapolated using proxy indicators (e.g., IIP, credit growth, crop estimates), not actual realised output.

·         As revealed in the NSO’s methodology section, large parts of quarterly GDP are extrapolations from previous-year benchmarks using high-frequency indicators.

·         The persistent “discrepancy” line item—sometimes as high as 3% of GDP—reinforces concerns around measurement error.

·         Frequent, large revisions to past GDP data further complicate trend analysis.

This does not invalidate the strength of 2QFY26 growth, but it does warrant caution in interpreting quarter-to-quarter changes. The IMF’s classification underscores the need to treat India’s quarterly GDP as directionally reliable, but perhaps not precise to the decimal. Hopefully, most of data related concerns will be addressed in the due revision of GDP base year and methodology, that reportedly will be implemented from the February 2026 onward reporting. 

Bottom line: Strong quarter, but keep the salt shaker handy

India’s 2QFY26 GDP print is undeniably strong—broad-based, investment-supportive, and consistent with high-frequency indicators such as credit growth, services PMI, and corporate earnings. Manufacturing’s rebound is a particularly constructive signal.

But the combination of (i) large statistical discrepancies, (ii) significant extrapolation-based estimation, (iii) base effect and benign deflator, and (iii) the IMF’s downgrade of data quality, means markets and analysts must evaluate the numbers with healthy skepticism. India’s growth impulse is real, but the exact magnitude may only settle after future revisions—especially with a base-year change due in early 2026.

For now, the message is clear: the economy is in an upswing.