Multiple sets of economic data have been released over the past few days—from gross domestic product (GDP) growth figures to the latest fiscal deficit numbers. Mint breaks them down to assess the state of the economy. Are animal spirits returning?
What does economic data say?
India’s GDP growth for July-September (Q2FY26) surprised almost everyone, coming in at a six-quarter high of 8.2%. Most forecasts had pegged it at around 7%. A year ago, Q2 growth was just 5.6%, and in Q1 of the current fiscal it was 7.8%.
The government also reported that fiscal deficit touched 52.6% of the annual target as of October, compared to 46.5% a year earlier, driven by higher expenditure and lower-than-budgeted revenues.
What drove the GDP growth?
A combination of strong manufacturing, steady services, and resilient agricultural output underpinned the performance.
Manufacturing grew 9.1%, supported by higher consumption and front-loading of exports to the US. Despite higher US tariffs, exports still rose 5.6%. Low inflation, along with cuts in income tax and goods and services tax, buoyed consumption. Overall industry grew 7.7%, up from 6.3% in the year-ago period.
What were the other factors?
Within services, financial services and real estate provided the lift, while agriculture posted growth above 3.5% for the fifth consecutive quarter. A statistically favourable deflator, thanks to low inflation, and a low base also pushed up real GDP growth.
What about nominal GDP growth?
Nominal GDP growth, measured at current prices without adjusting for inflation, slowed to 8.7% because of low inflation. It is expected to end FY26 at below 8%, compared with 9.8% in FY25.
This is a concern for the government, which assumed 10.5% nominal GDP growth in the FY26 Budget while projecting revenues.
How will this impact fiscal deficit?
With nominal GDP growth falling short of budget assumptions, revenue mobilization is likely to be strained, already hurt by direct and indirect tax cuts.
As of October, tax revenue growth was 45%, down from 51% a year earlier. At the same time, expenditure has risen faster, pushing up the fiscal deficit. To meet its fiscal deficit target of 4.4% of GDP this year, the government may eventually need to either rein in spending or raise additional revenues.
Is the economy witnessing a return of animal spirits?
With broad-based strength across sectors, there are early signs of animal spirits returning.
Consumption is holding up and private investment is reviving, though experts would prefer to wait before calling it a trend. Many economists have upgraded their FY26 India GDP growth forecasts from around 6.3-6.8% to above 7%. The Reserve Bank of India is also expected to revise its growth projection upwards at its monetary policy committee meeting later this week.