GDP growth beats expectations led by strong consumption

New Delhi: India’s economy outperformed expectations in Q2 FY26 as income tax cuts, GST rationalisation, an early festive season and easing inflation supported the acceleration of private final consumption expenditure (PFCE) to 7.9 per cent in the quarter, a report said on Monday.

Despite some moderation, gross fixed capital formation grew at an encouraging rate of 7.3 per cent in Q2, supported by public capital expenditure, said the report from CareEdge Ratings.

It forecasted that growth momentum is expected to moderate to roughly 7 per cent in the second half of FY26 after averaging at about 8 per cent in the first half, estimating FY26 GDP growth at 7.5 per cent.

The low base of the previous year and the low deflator also pushed up the GDP growth rate, the report said. Regarding the global economy, the agency said that global deflationary trends have created monetary space for rate cuts in most advanced and emerging economies.

"The policy rates were increased in Japan and Brazil to combat higher inflation. Meanwhile, policy rates were cut in the UK and the US, despite inflationary pressure in the respective countries, to support growth," the report said.

The Dollar Index (DXY) weakened due to a mix of factors, including heightened uncertainty around US trade policy, rising fiscal concerns, and growing expectations of Fed rate cuts. Further, structural shifts such as increased global central banks' demand for gold also added downward pressure on the dollar, it noted.