Schrodinger's economy: Rising and slowing at the same time, Pg12

Key Highlights:

• India's real GDP growth reached 8.2% in the second quarter, surpassing forecasts, following 7.8% in the first quarter.
• The growth was driven by a 9% jump in manufacturing and services, aided by a low base and frontloading of export orders.
• In nominal terms, the economy slowed from 10.7% in March to 8.7% in the September quarter.
• Low nominal growth impacts revenues, incomes, and puts downward pressure on the fiscal deficit.
• The RBI projects 6.8% full-year growth, implying a required rate of 5.7% for the second half of the year.

Detailed Insights:

• The high GDP growth occurred despite US tariffs and geopolitical uncertainties, but was also due to stockpiling for the festive season and GST rate cuts.
• Private consumption increased, supported by fiscal and monetary measures, while investments remained strong but slowed slightly.
• Low nominal growth, with single-digit growth in five of the last six quarters, affects companies without pricing power, leading to declining revenues and margins.
• The FY26 budgetary assumption of 10.1% nominal growth is under strain as the fiscal deficit increases as a percentage of nominal GDP.
• Uncertainties remain regarding the continuation of GST stimulus, the impact of US tariffs on jobs and output, and upcoming revisions to GDP, CPI, and IIP data in early 2026.

Key Concepts Involved:

• Real GDP: Measures economic output adjusted for inflation, reflecting the actual increase in the volume of goods and services.
• Nominal GDP: Measures economic output at current prices, without adjusting for inflation, reflecting the current value of goods and services.
• Fiscal Deficit: The difference between a government's total revenue and its total expenditure, indicating the amount of borrowing needed.