India's GDP growth likely rebounded to around 6.4% in Q3FY25: Poll

Poll of 12 forecasters shows pickup in rural demand, govt capex

A revival in rural demand, an increase in central government capital expenditure (capex), and a pickup in industrial production likely led to a rebound in India’s economic growth to around 6.4 per cent in the December quarter of FY25, according to a poll of 12 professional forecasters.

 

In the preceding September quarter, gross domestic product (GDP) growth had fallen to a seven-quarter low of 5.4 per cent, driven by an industrial slowdown and a moderation in investment demand.

 

Forecasts for the third quarter (Q3) of FY25 range from 6.2 per cent by HDFC Bank to 6.7 per cent by L&T, with the Reserve Bank of India’s (RBI’s) Nowcast estimating 6.2 per cent growth. However, the real GDP growth for Q3 of FY25 may also depend on any revisions to the Q3 GDP print for FY24.

 

The Ministry of Statistics will release the Q3 growth numbers on February 28, along with the second Advance Estimates of GDP for the current financial year.

 

Icra Chief Economist Aditi Nayar said India’s economic performance in Q3 benefited from a spike in aggregate government spending on capital and revenue expenditure, high growth in services exports, a turnaround in merchandise exports, and healthy output of major kharif crops, which supported rural sentiment. “Some consumer-focused sectors saw a pickup during the festival season, even as urban consumer sentiment dipped slightly, and sectors like mining and electricity, saw an improvement after weather-related challenges in the previous quarter,” she added.  

 

Growth in the Index of Industrial Production (IIP), which reflects industrial sector performance, accelerated to 3.96 per cent in Q3, up from 2.73 per cent in Q2.

 

Gaura Sengupta, chief economist at IDFC Bank, said net profit growth for non-financial companies turned positive in Q3 FY25 (4.9 per cent) after declining for three consecutive quarters.

 

“The improvement is led by a revival in rural demand and a rise in central government capex. Urban demand is also showing some signs of improvement, but the recovery remains relatively softer than rural demand,” she added.

 

Nayar said India’s investment activity improved in Q3, as reflected by increased growth in several investment-related indicators, including capital and infrastructure goods output, cement production, engineering goods exports, and capital spending by the central and state governments.

 

The central government’s capex surged to a six-quarter high of 47.7 per cent in Q3FY25, up from 10.3 per cent in Q2FY25. Also, the aggregate capital outlay and net lending of 24 state governments (excluding Arunachal Pradesh, Bihar, Goa, and Manipur), based on data from the Comptroller and Auditor General, rose to 9.9 per cent in Q3 FY25 from 7 per cent in Q2 FY25.

 

In his first statement after the Monetary Policy Committee meeting on February 7, RBI Governor Sanjay Malhotra had said rural demand continues to rise, while urban consumption remains subdued, with high-frequency indicators providing mixed signals.

 

“Going forward, improving employment conditions, tax relief in the Union Budget, and moderating inflation, together with healthy agricultural activity bode well for household consumption. Government consumption expenditure is expected to remain modest,” he added.

 

Madan Sabnavis, chief economist at Bank of Baroda, said rural demand was likely to be stronger in the second half of FY25, as reflected in the recovery of tractor and two-wheeler sales.

 

“The uptick in e-way bill generation in January will provide some support to the services sector. Manufacturing and the Purchasing Managers’ Index continue to rise, reaching a six-month high and remaining in expansionary territory. GST collections also remain on strong footing, and the financial sector remains positive with higher credit and deposit growth,” he added.