New Delhi: India’s GDP growth is expected to recover to 6.4 percent in the third quarter of fiscal year 2025, up from a seven-quarter low of 5.4 percent in Q2FY25, according to ICRA’s latest estimates.
The rebound is attributed primarily to increased government spending amid uneven consumption patterns.
This growth will be driven by expansion across all major sectors – industrial (6.2 percent, up from 3.6 percent), services (7.7 percent, up from 7.1 percent), and agricultural (4.0 percent, up from 3.5 percent).
The Gross Value Added (GVA) is projected to see a broad-based improvement to 6.6 percent in Q3FY2025 from 5.6 percent in Q2FY2025.
Despite this improvement, ICRA notes that both GDP and GVA growth in Q3 will likely remain below the National Statistical Office’s initial growth estimates for Q1FY2025 (6.7 percent and 6.8 percent, respectively).
The first quarter had been affected by Parliamentary elections, the Model Code of Conduct, and heat waves in some states.
The Reserve Bank of India (RBI) had previously projected higher growth rates for the second half of FY25, with Q3 estimated at 6.8 percent and Q4 at 7.2 percent.
Growth in net indirect taxes is expected to slow significantly to low single digits in Q3FY2025, down from 7.9 percent in Q2FY2025. This deceleration is attributed to a sharp increase in subsidy disbursement by the Centre, resulting in GDP expansion continuing to trail GVA growth for the third consecutive quarter.
Aditi Nayar, Chief Economist, ICRA, highlighted several positive factors supporting Q3 performance, stating, “India’s economic performance in Q3FY2025 benefitted from a sharp ramp-up in aggregate Government spending on capital and revenue expenditure, high growth in services exports, a turnaround in merchandise exports, healthy output of major kharif crops, which would have buffered rural sentiment.”
The industrial GVA is projected to see broad-based improvements across manufacturing (5.0 percent, up from 2.2 percent), construction (9.5 percent, up from 7.7 percent), electricity (5.0 percent, up from 3.3 percent), and mining and quarrying (2.5 percent, up from -0.1 percent).
Investment activity strengthened during the quarter, with government capital expenditure surging to a six-quarter high of 47.7 percent in Q3FY2025 compared to 10.3 percent in Q2FY2025.
Services exports reached an all-time high of USD 36.9 billion in December 2024, with the pace of expansion rising to 17.5 percent in Q3FY2025 from 12.2 percent in Q2FY2025.
Merchandise exports also showed improvement, recording a 3.3 percent year-on-year increase in Q3FY2025 after contracting 4.3 percent in the previous quarter.
Agricultural sector performance is expected to reach a seven-quarter high of 4.0 percent growth in Q3FY2025, up from 3.5 percent in Q2FY2025, supported by healthy kharif food grain production and a favourable base effect.
