ON A ROAR HOW TO SUSTAIN THE UPSURGE

An 8.2 per cent growth in GDP in Q2 of FY26, along with benign inflation, has placed the Indian economy in a unique sweet spot. Can it put the country on a high-trajectory growth path, give the job market a much-needed boost?

- By M.G. ARUN, ANILESH S. MAHAJAN & SONAL KHETARPAL

WHEN THE GDP NUMBERS FOR THE SECOND quarter of the current fiscal came in December-end, economists were pleasantly surprised. Growth had risen to 8.2 per cent, higher than the 7.2 per cent in Q1, and much higher than the 7 per cent the Reserve Bank of India (RBI) had anticipated. This brought to the fore a key question: has the economy finally shaken off the inertia dogging it since the pre-COVID days? More importantly, can this growth be sustained, and can it rejuvenate private investment and bring in the jobs that the country badly needs? There are no easy answers. The higher GDP in Q2 was not just because of an uptick in corporate performance that aided manufacturing and services, but also because it came on a low base of 5.6 per cent. The numbers were also aided by the use of a very low GDP deflator of 0.5 per cent. A 'deflator' is used to convert nominal GDP (everything produced in an economy at current prices, unadjusted for inflation) into real GDP to accurately reflect changes in actual production, not just price increases.

But there are other factors that point towards a robust phase for the economy. One is low inflation, which rested in the lower range of the RBI's target band of 2-4 per cent for several months in a row (aided by low food inflation and benign crude prices). The other is a rebound in consumption, helped by a tweak in the Goods and Services Tax (GST) slabs that brought down taxes on 90 per cent of essential goods, and income tax reforms. The new GST slabs kicked in only in late September, so its full impact will reflect in Q3FY26. The Indian economy has entered what RBI governor Sanjay Malhotra calls "a rare Goldilocks period" marked by a high phase of growth and low inflation (see interview).

THE GROWTH DRIVERS