GDP likely grew by a median 6.3% in Q3, slightly higher than RBI’s 6.2% estimate

The Indian economy likely picked up pace in the December quarter, fuelled by strong agricultural output, a revival in rural demand, and higher capital expenditure, according to an ET poll of economists. A median forecast of 10 economists pegged gross domestic product (GDP) growth at 6.3% in the third quarter from the year ago, with estimates ranging from 5.8% to 6.5%. In the preceding quarter, GDP growth slowed to a seven-quarter low of 5.4%. The Reserve Bank of India (RBI) expects the economy to expand 6.2% in the October-December period. The National Statistics Office (NSO) will release the official GDP figures for Q3 and the second advance estimates for FY25 on February 28. The NSO had last month forecast 6.4% growth for FY25. The ET poll sees FY25 growth at a slightly lower 6.3%. The RBI, however, has projected 6.6% growth.

“Several high-frequency indicators, such as passenger vehicle sales, petrol consumption, domestic air passenger traffic, and central government capital expenditure have shown improvement in Q3 compared to the previous quarter,” said Rajani Sinha, chief economist at CareEdge Ratings. In the third quarter of FY24, GDP grew 8.6%. Radhika Rao, senior economist at DBS Bank, noted that the passage of idiosyncratic factors including unfavourable weather, better kharif crop output, festive demand and better production numbers are a few other factors that should lift third-quarter output. Capital expenditure by the central government rose by around 48% year-on-year in the quarter ended December from 24% in the same quarter of last fiscal.

AGRICULTURE, MANUFACTURING

The Index of Industrial Production (IIP) grew at an average 3.9% in the third quarter, up from 2.6% in the second quarter. IIP manufacturing growth improved—to 4.3% from 3.3% in the same period. Economists flagged an improvement in corporate performance and a double-digit growth in profits, which will boost value addition in the manufacturing sector. The agriculture sector grew 3.5% in the second quarter of FY25 compared with 0.4% in the third quarter of FY24. A healthy kharif output, along with good progress in rabi sowing, is expected to support agricultural growth, said Sinha. “Our estimate for 2024- 25 takes into account the 6.2% growth for Q3, which is lower than the 6.7-6.8% required to achieve 6.4% growth for the full year,” said Sakshi Gupta, principal economist at HDFC Bank. The World Bank and the International Monetary Fund (IMF) both estimated India’s FY25 GDP growth at 6.5%.

OUTLOOK

Economists expect growth to pick up in the coming financial year, with a median GDP growth forecast of 6.6%. The estimates range between 5.9% and 7%. “There will be improvement in GDP growth, in part benefiting from low base, lower cost of capital driving investment demand, and consumption support from the income tax cuts announced in the budget,” said Aastha Gudwani, India chief economist, Barclays. The urban demand slide will be arrested in FY26 and rural demand will gain further momentum, which will provide the delta for growth, said Gupta. However, she cautioned that government expenditure will need to play a crucial role in driving growth, given global uncertainties. Private capital expenditure expansion may take time, with risks stemming from external factors and implications of potential tariffs on India’s goods exports.