India's economy appeared on track to deliver another quarter of strong growth, with GDP expected to expand by around 7.5 percent in Q2 FY26, according to State Bank of India's latest report. SBI Research said this momentum had been supported by a revival in investment activity, strengthening rural consumption and the demand boost triggered by GST rationalization, which lifted festive spending across sectors. The research house maintained its full-year GDP outlook at 7.2–7.3 percent, suggesting that India continued to outperform major global economies.

However, even as growth surged, SBI flagged a key policy dilemma for the Reserve Bank of India (RBI): Was it already too late for a rate cut?

A Missed Opportunity for a Pre-Emptive Rate Cut?

SBI Research noted that the RBI may have allowed the "optimal window" for a pre-emptive rate cut to slip by, as inflation fell sharply and growth remained robust. The central bank's decision in its October review to maintain the status quo on policy rates "substantially narrowed its tactical flexibility," the report said.

With inflation staying below 4 percent since February 2025 and expected to remain subdued through much of FY27, SBI argued that the June-to-October period might have been the more suitable time for easing. The February 2026 policy meeting—once considered a potential turning point—was no longer seen as offering the same freedom of action.

SBI described the scenario as a "double whammy" for the Monetary Policy Committee (MPC), which now had to balance strong growth momentum with inflation readings that had turned decisively benign. The bank's internal estimates projected Q1 FY27 inflation slipping below 3 percent, far lower than the RBI's earlier projection of 4.9 percent, later trimmed to 4.5 percent in October.

The report also stressed that long-term inflation forecasting remained extremely uncertain in a "multi-polarised world," warning that overconfidence in distant projections could weaken central-bank communication at a time when clarity was crucial.

December Policy: A Close Call

SBI Research said the upcoming December policy meeting would be a "close call," adding that any decision to cut rates must be accompanied by strong communication, especially since growth was running above 7 percent.

"It will depend entirely on how the RBI communicates a rate cut when growth numbers are in excess of 7 percent," it said. "Does the central bank speak of aspirational growth? It remains to be seen."

Growth Momentum Strengthens Across Sectors

Beyond monetary policy, the Ecowrap report underscored India's accelerating macroeconomic fundamentals. Growth, it said, was being propelled by buoyancy in both services and manufacturing, supported by structural reforms that lifted demand conditions.

SBI's nowcast model projected real GDP growth of ~7.5 percent in Q2 FY26, with room for an upside surprise if current momentum persisted. It highlighted rising traction across agriculture, industry and services, with 83 percent of leading indicators signaling demand strength in Q2, up from 70 percent in Q1.

GST rationalization played a central role in boosting consumption. SBI said the measure unleashed a strong festive spirit, "showcasing triumph of hope over hype," as spending surged in September and October 2025.

GST Collections Surge on Festive Demand

On the fiscal front, SBI estimated that gross domestic GST collections for November 2025 could touch ₹1.49 lakh crore, marking a 6.8 percent year-on-year increase. Including IGST and cess from imports, total receipts could cross ₹2 lakh crore.

The surge was attributed to peak festive demand, lower GST rates and improved compliance, with most states expected to record positive gains.

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