Great Demand-led Product

The Government can happily and confidently tick several boxes. GST 2.0 was a grand success, as is evident from more than eight per cent GDP growth in the second quarter (July-September) of this year. The Budget decision to exempt income up to `12,00,000 a year from personal taxes has cajoled, and pushed consumers to buy more, which is indicated by the GDP figures in the first half of the year. The high US tariffs have affected exports, but not much in the first six months. India is on its way to beat the low expectations, and poised to post unexpected GDP numbers in 2025-26.
Until this morning, the estimates through media polls of experts and economists zoomed on a high seven per cent, but none predicted over eight per cent in the second quarter. Most of the global institutions, and domestic ones including the central bank, were caught with their figures being way off the mark. As a website remarked, “India’s GDP recorded a six-quarter high growth of 8.2 per cent in Q2, as factories churned out more products in anticipation of a consumption boom from the GST rate cut.” Apart from supply, demand surged too, and services remained on a firm ground.
Manufacturing, whose share of the GDP has come down in the recent past, grew by more than nine per cent, compared to just above two per cent in the same quarter the previous year. Utilities, which include electricity, water, and gas supplies, grew at a higher 4.4 per cent compared to three per cent the previous year. Construction proved to be a slight dampener, as its growth slowed to 7.2 per cent compared to 8.4 per cent. On an overall basis, the secondary sector, which constitutes the three segments, grew by more than eight per cent, or twice the figure for the same period in the previous year.
However, one needs to be wary about two factors. The first is that despite the policy boost to manufacturing, its contribution to the GDP has not gone up, and hovers around 14 per cent. Construction and utilities comprise an additional 11 per cent. The second is the huge variation in the secondary sectors over the past three years. When one considers the second quarter, the growth rates ranged between extremes: nearly 16 per cent in 2023-24, four per cent in 2024-25, and the latest more than eight per cent in this fiscal. This needs to be a cause for worry due to the lack of consistency over the years.
In comparison, the tertiary sector, which comprises trade, hotels, transport, communications, finance, real estate, defence, and professional services, remained more stable. The growth rates in the second quarters of the past three years were 7.5 per cent, just over seven per cent, and more than nine per cent, respectively. Within the tertiary sector, financial, real estate, and professional services grew by more than 10 per cent this fiscal, which was higher than just over seven per cent in the previous year. Trade, hotels, transport, and communications were up to 7.4 per cent compared to just over six per cent. Thus, services remained stable vis-à-vis growth.
What is of concern despite the GDP boost is the performance of the primary sector, which constitutes agriculture, forestry and fishing, and mining. On an overall basis, the growth in the second quarters over the past three years has consistently come down from 3.7 per cent in 2023-24 to marginally over three per cent this fiscal. Agriculture, forestry, and fishing is down to 3.5 per cent compared to over four per cent in the past two years. Mining continues to be in the dumps, although its performance has improved from a negative 0.4 per cent to a negative 0.04 per cent in the past two years.
One can say that manufacturing and services are the mainstay of a modern economy. But in a country like India, where farming sustains most of the population in terms of livelihoods, the trends are a bit alarming. In recent weeks, the farmers have complained about low incomes, with the prices they fetch being below the official minimum support prices. Many farmers in the north have crossed state borders to sell their crops at more remunerative prices. Imports of specific crops like cotton have added to their dismay. They are worried about the India-US bilateral deal despite assurances.
Apart from sector-wise, and segment-wise data, what is of importance is that there seems to be a perceptible change in consumer sentiments. According to the second quarter figures, the real private final consumption expenditure was up by 7.9 per cent, which is higher than the just over six per cent in the corresponding period last fiscal. This indicates that GST 2.0, and higher disposable incomes due to personal tax decisions, have nudged them to spend more. This was one of challenges in the recent past, especially in 2024-25, and through the first quarter of this fiscal year.
Over the next three months, one will need to see how this growth momentum, unexpected as it was in the first two quarters of this year, sustains. In a week’s time, we will get the GST collection figures for October 2025, which will conclusively show how the festive season buying shaped up due to GST 2.0. The second quarter only catches the expenditure during the last 10 days of September, as the benefits of GST 2.0 were evident from the Navratri period. Later, we will need to see the figures for November and December to determine whether the GST effect was a one-off one, and has continued.
Another important factor may be the lag effect of public spending. Government spending in the second quarter decelerated to 2.7 per cent compared to 7.4 per cent in the previous quarter. Based on GST 2.0, the Government wishes to reduce its exposure, and feels that the gap will be more than filled by private investments. This seems to have happened in the second quarter, but one needs to see if this trend continues. Prime Minister Narendra Modi gave the credit for the stupendous growth to the people. “The 8.2 per cent GDP growth… is very encouraging. It reflects the impact of our pro-growth policies, and reforms. It also reflects the hard work and enterprise of our people. Our government will continue to advance reforms, and strengthen Ease of Living for every citizen,” he said on X.