India’s economic trajectory continues on a stable path, with fresh estimates suggesting that GDP growth in the July–September quarter (Q2 FY26) will come in at around 7%. Although this marks a moderation from the 7.8% growth recorded in the first quarter of the fiscal year, the performance still reflects resilience across major sectors despite a more tempered rise in services and agriculture.
Alongside GDP, gross value added (GVA) is also expected to ease slightly from 7.6% in Q1 to 7.1% in Q2, indicating a shift in the contributions of various segments of the economy as the quarter progressed.
Sectoral Dynamics: Industry Surges as Services and Agriculture Cool
According to the analysis, the most notable change lies in the contrasting trajectories of industry and services. The services sector—long viewed as the backbone of India’s growth—likely expanded at 7.4%, significantly below its 9.3% rise in Q1. Agriculture too softened, dipping marginally from 3.7% to 3.5%.
However, this moderation is partially offset by a strong rebound in the industrial sector. Industry is projected to post a five-quarter high of 7.8%, up sharply from the previous quarter’s 6.3%.
This momentum is attributed to a combination of early festive-season inventory stocking, higher production volumes following GST rationalisation, and front-loaded exports to the United States ahead of tariff changes. Together, these factors created a temporary but meaningful boost in manufacturing activity.
GVA-GDP Spread Expected to Narrow Again
One of the more technical but important insights from the report is the expected reversal in the GVA-GDP growth gap. After turning positive in Q1, the spread is forecast to slip back into negative territory by around 10 basis points.
A significant reason is the contraction in net indirect taxes—shifting from a robust 9.5% growth in Q1 to a decline of 5.2% in Q2. Subsidies, while still negative, also shrank at a slower pace. These tax and subsidy adjustments played a key part in GDP calculations and influenced the overall spread.
Government Spending Slows, Influencing Growth Pace
The quarter also saw a more restrained rise in government expenditure. Economists highlight that this softer fiscal impulse could weigh on GDP and GVA compared to the stronger momentum visible in the opening months of the fiscal year.
Yet, the private sector’s activity and manufacturing uplift helped prevent a deeper moderation in headline growth.
Capital Expenditure Trends Show Mixed Signals
Capital expenditure remained a central component of the growth narrative, though the numbers point to a normalization from the previous quarter’s surge.
Gross capital expenditure growth slowed to 30.7% year-on-year in Q2 FY26, easing from the exceptionally high 52% jump in Q1. However, when compared to the same period a year ago, capex remains on a significantly stronger base.
In absolute terms, average monthly capex climbed to Rs 1,019 billion in Q2—up from Rs 917 billion in Q1. Meanwhile, average monthly private capex rose to Rs 544 billion, nearly half the government’s level, and considerably higher than the Rs 378 billion average recorded in Q1.
These numbers show that although the pace of growth has settled, investment activity across the economy remains elevated.