India's GDP growth likely accelerated in Q4 on rural demand, state spending

India's economic growth likely picked up pace in the January-March quarter, buoyed by stronger rural demand and higher government spending, even as private firms delayed investments amid global uncertainties.

Gross domestic product (GDP) is expected to have grown 6.7 per cent year-on-year in the March quarter, up from 6.2 per cent in the previous three months, according to a Reuters poll of economists.

Rural consumption improved during the quarter, while urban demand indicators remained mixed, said Gaura Sen Gupta, chief economist at IDFC First Bank Economic Research. Investment was supported by government spending, she said. 

The Ministry of Statistics will release March-quarter GDP data and provisional estimates for the 2024-25 (April-March) fiscal year on Friday at 1030 GMT.

Some economists expect GDP growth to print significantly above expectations due to a fall in government subsidies. But they caution that true economic growth, as measured by gross value added (GVA), will be lower than the headline number.

The calculation of GDP includes indirect taxes and government subsidy payouts which tend to be volatile, while GVA strips out those components.

JP Morgan expects March quarter GDP growth at 7.5 per cent year-on-year, while GVA growth is seen lower at 6.7 per cent compared to 6.2 per cent in the previous quarter. 

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India's central bank, the Reserve Bank of India (RBI), expects GDP growth at 6.5 per cent in the fiscal year beginning April 1.

At that rate, India remains the fastest growing among major economies and its size could match Japan's this year at $4.18 trillion, according to projections by the IMF. 

Economists said while the global outlook has weakened amid escalating trade tensions, India appears relatively insulated due to lower dependence on goods trade, tax cuts announced by the government in February and lower interest rates.

"Despite the various downside risks, we think the policy coordination between the government and the RBI remains the strongest at this juncture," said Kaushik Das, India chief economist at Deutsche Bank, adding that authorities are showing strong resolve to do "whatever it takes" to support growth.

Retail inflation, which eased to a near six-year low of 3.16 per cent in April, alongside a favourable monsoon forecast, is expected to keep food prices in check and pave the way for another policy repo rate cut by the RBI in June.

The government's income tax relief, recent fiscal measures and central bank rate cuts, could lift growth to 6.3 per cent-6.8 per cent in the current fiscal year, the finance ministry said.