The 8.2% real GDP growth was triggered by low inflation, with October inflation as low as 0.25% yoy. The big thrust to GDP growth came from manufacturing and services. Manufacturing GDP growth was robust at 9.1% in Q2FY26, compared to just 2.2% in Q2FY25. The other big driver of GDP growth in Q2FY26 was the services sector. While financial services and realty grew in double digits, the overall services sector saw 9.2% real growth. Services, with more than 55-60% weightage in the overall GDP index, did most of the heavy lifting. Construction was weaker than the year-ago period. 

However, the real story lies in the nominal GDP growth rate, which is before adjusting for inflation. Overall, the gap was not much. The nominal GDP growth rate in Q2FY26 was at 8.7%, against the real GDP growth rate of 8.2%. This shows that inflation is having a very limited impact on growth, so most of the nominal growth is getting translated into real GDP growth too. Across manufacturing and the services sector; the nominal growth is just about 50-100 bps higher than real growth. In cases like agriculture, mining, and even construction and utilities; negative inflation boosted real growth above nominal growth. 

While the default definition of GDP growth is real GDP growth, it is also essential to look at nominal GDP growth for several reasons. The average nominal growth rate in Q2FY26 has been around 8.7%. This is about 250 to 300 bps lower than what we seen about a couple of years back. That is because the inflation adjustment factor has come down sharply from over 300 bps to just about 50 bps. Tepid nominal growth has negative implications for jobs creation and also for direct and indirect tax collections. These figures are dependent on the nominal growth rate. In fact, job creation is more dependent on the nominal rate of economic growth than the real rate of growth. 

This point has been highlighted by the IMF in a recent report. India was originally supposed to cross the $5 trillion GDP mark in 2028, but that has been put off to 2029.  Now it looks very likely that it may only happen in 2030, even assuming that India crosses the $4 trillion GDP mark in FY26 and then maintains nominal growth of 12% plus. There is also the issue of the rupee-dollar equation, but weak nominal growth certainly means that India’s dreams of becoming a $5 trillion economy are going to look tad tougher. For now, the real growth looks great, but the focus has to shift to giving a big push to nominal GDP growth. After all, that is what matters to a high-growth economy.