India’s economy surprised on the upside in the September quarter, delivering a stronger-than-expected performance even as economists cautioned that the coming months may not sustain the same momentum. According to data shared with CNBC-TV18, the country’s GDP rose 8.2% in Q2FY26, comfortably beating the 7.4% estimate from the CNBC-TV18 poll.

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Manufacturing Drives the Upside; Rural Demand Strengthens Festive Impact May Fade; Tariff Pressures Could Hurt Manufacturing Nominal GDP Slowdown a Major Concern, Says Deutsche Bank’s Kaushik Das Credit Growth Improves, but Export Weakness Remains a Risk

The sharp acceleration was powered primarily by manufacturing activity and a firm pickup in rural consumption, both of which created a strong foundation for growth in the second quarter. However, experts say several headwinds — including fading festive-season demand, weaker exports, and softer nominal growth — could weigh on the pace of expansion in the coming quarters.

Manufacturing Drives the Upside; Rural Demand Strengthens

The latest data highlighted broad-based economic resilience. Gross Value Added (GVA) expanded 8.1%, significantly higher than the 5.8% recorded a year earlier. The manufacturing sector stood out as the biggest contributor, posting 9.1% growth, compared to just 2.2% last year. This turnaround, economists say, was instrumental in powering the overall GDP beat.

Agriculture also grew a healthy 3.5%, while the electricity and construction sectors extended supportive momentum. Mining, however, experienced a marginal contraction during the quarter.

Speaking to CNBC-TV18, Sakshi Gupta, VP and Senior Economist at HDFC Bank, said part of the second-quarter strength was driven by pre-festive season demand and a better rural environment. “On the consumption side, there is momentum that has continued to pick up in the second quarter. A part of this is being led by the rural economy,” she said.

Gupta noted that government-led capital expenditure remains the single biggest driver of investment. However, she added that early signs of private-sector capacity expansion are visible in select industries — a positive signal for the investment cycle going forward.

Festive Impact May Fade; Tariff Pressures Could Hurt Manufacturing

While manufacturing delivered an impressive performance, economists warned that the boost may not last at the same pace in the upcoming quarters. Gupta pointed out that some of the strength came from festive-season production schedules, which tend to normalize after the holiday period.

She also flagged emerging tariff-related pressures that could weigh on manufacturing margins and output. The combined effect of normalizing production and tariff headwinds may contribute to softer numbers in Q3 and Q4.

Despite the strong print, Gupta said the Reserve Bank of India (RBI) might still consider a rate cut, though she termed it “a close call.” She highlighted forward-looking indicators that point to softer momentum in the second half of the year.

Also Read: RBI Imposes ₹91 Lakh Penalty on HDFC Bank for Compliance Lapses

Nominal GDP Slowdown a Major Concern, Says Deutsche Bank’s Kaushik Das

Kaushik Das, Chief Economist at Deutsche Bank, said the strong GDP print was largely expected given the favourable base and the workings of the GDP deflator. “It was very easy to forecast… If you get your nominal GDP growth right… you would have got that 8% handle,” he said.

But Das warned of a significant concern beneath the headline number: the sharp slowdown in nominal GDP growth. He noted that this deceleration poses potential challenges for tax collections, corporate earnings, and fiscal ratios, all of which depend heavily on nominal expansion. According to him, nominal GDP growth for FY26 may stay below 9%, which is “not a very good story.”

Das expects growth to moderate from here, with projections for upcoming quarters falling into the 6%–6.5% range. He reiterated his position that the RBI should deliver a rate cut in December, arguing that monetary policy must account for forward indicators, especially with base effects turning unfavorable and the GDP deflator likely to normalise.

Credit Growth Improves, but Export Weakness Remains a Risk

Adding another perspective, Sameer Narang, Head of Economic Research Group at ICICI Bank, said several nominal indicators have begun showing signs of improvement. Credit offtake, for instance, has risen to ₹9.7 lakh crore this year versus ₹8.1 lakh crore last year. Vehicle sales have also remained firm, further supporting consumption momentum.

“It seems that we have bottomed out, and we are gradually seeing an increase in momentum,” Narang said, indicating cautious optimism about domestic demand.

However, he warned that exports continue to be the biggest risk factor, especially as tariff-related pressures intensify. According to Narang, domestic demand may stay strong, but weakening exports could prevent the economy from sustaining 8% growth consistently. Export softness could act as a ceiling on expansion even if internal consumption holds up.

Experts Agree: Q2 Was Strong, But the Next Few Quarters Will Test Resilience

Across viewpoints, economists unanimously agree that Q2 delivered a genuinely strong performance. Manufacturing strength and rural consumption momentum played crucial roles in offsetting sectoral weaknesses and supporting overall demand.

However, several factors could moderate growth from here: