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Informist, Friday, Nov. 28, 2025

 

By Shubham Rana

 

NEW DELHI – India's GDP growth has once again surprised everyone. Propped up by the statistical effect of low inflation, GDP growth in the September quarter topped even the most optimistic of forecasts at 8.2%. While headline GDP is likely overstating the actual growth momentum, the sharp rise has complicated the Monetary Policy Committee's interest rate decision next week, economists said.

 

Before the September quarter data, most economists had expected that the Reserve Bank of India's rate-setting panel will lower the repo rate by 25 basis points to 5.25% on Dec. 5. The six-quarter high GDP growth of 8.2% in the September quarter has made the decision a much more "closer call", economists said.

 

Growth in the September quarter was 100 bps higher than the consensus estimate of 7.2% in an Informist poll and 120 bps higher than the RBI's forecast of 7.0%.

 

Growth was supported by the strong performance of industry and services sectors and also by lower inflation, as was the case in the June quarter when the economy had expanded 7.8%. A low base--GDP had expanded 5.6% in Jul-Sept last year--also aided the rise.

 

Contrary to real GDP growth, nominal GDP growth, which is measured at current prices, fell to a four-quarter low of 8.7% in the September quarter. The difference between nominal GDP growth and real GDP growth was 50 bps in the September quarter, the lowest in six years and significantly lower than the historical average of 470 bps.

 

"We know there are issues of low base, deflator, etc.," Sakshi Gupta, principal economist at HDFC Bank, said. Statistical factors aside, Gupta said, sequential momentum in GDP growth was higher than the seasonal trend, reflecting the ramping up in production ahead of the festival season after the cut in goods and services tax cuts were announced.

 

With the September quarter print, the GDP has grown 8.0% in the first half of 2025-26 (Apr-Mar), compared with 6.1% in the same period a year ago. This is much higher than what economists and the RBI had projected at the start of the year.

 

Even after taking into account the projected slowdown in the second half of the year, GDP growth in FY26 is likely to exceed the projection of 6.8% by the RBI and 6.3-6.8% by the government. With the economy expanding 8.0% in Apr-Sept, even with the RBI's projection 6.4% for the December quarter and 6.2% in the March quarter, the GDP growth in FY26 will be close to 7.2%.

 

Economists have already raised their growth forecasts for the year. Madhavi Arora of Emkay Global Financial Services has raised her forecast for FY26 to 7.3% from 6.5?rlier. Economists at State Bank of India, Bank of Baroda, YES Bank, and HDFC Bank have also raised their full year growth forecasts to around 7.5%. Growth momentum, supported by GST cuts, is likely to spill over to the December quarter but the drag from the 50% tariff would weigh on the headline growth, economists said.

 

"Looking ahead, we expect the GDP growth to moderate to around 7% in H2 as the impact of front loading of exports fades and consumption demand moderates post festival season," CareEdge Ratings said in a report. "By the fourth quarter of FY26, the low base effect will wane, and deflator will also increase from the current low levels."

 

The second consecutive quarter of sharply higher-than-expected GDP growth may make the Monetary Policy Committee's decision next week much harder than previously thought, economists said. In the October policy statement, the committee had said that macroeconomic conditions and the outlook have opened up policy space to further support growth. On Monday, RBI Governor Sanjay Malhotra said that recent macroeconomic indicators suggest scope for further rate cuts.

 

The yield on the 10-year benchmark government bond rose 4 bps after the GDP data was released, signalling that the market scaled back bets of a rate cut next week. "The MPC faces a challenging act at the December rate review, with the mix of a strong growth print and record low inflation," DBS Bank's Senior Economist Radhika Rao said in a note. HDFC Bank's Gupta said that while she continues to expect a rate cut next week, "I kind of am conceding that it's a very close call."

 

CPI inflation fell to a record low of 0.25% in October and is expected to average around 2% in FY26. This, economists said, along with global headwinds and the risks from US tariffs could tilt the balance in favour of a rate cut next week.  End

 

Edited by Ashish Shirke

 

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