Looks like I have been searching the wrong keywords. Doing a google search on 'jquery grid initial data' instead of 'struts 2 jquery grid ..' brought me to a quick and painless fix. Anyway here is the quick fix in case anyone runs into similar issue:
Set the grid attribute initially:
datatype: local
In your ajax call set the grid attribute to 'json' (assuming you are working with JSON data)
$('#my-jqgrid-ID') .jqGrid('setGridParam', { 'datatype' : 'json' }) .trigger('reloadGrid');