Q3 GDP growth seen stronger on improved rural demand, govt spending

In the three months to December, gross domestic product likely expanded by 6.3% from a year earlier, according to a Reuters' poll

India's economic growth is expected to have picked-up in the October to December quarter as rural consumption improved following a good monsoon and government spending gathered pace.

Asia's third-largest economy saw a sharp slowdown in the July to September quarter, with GDP growth slipping to 5.4 per cent, the slowest pace in seven quarters. Economists blamed the slowdown on weak urban demand and a delay in government spending due to national elections last year.

In the three months to December, gross domestic product likely expanded by 6.3 per cent from a year earlier, according to a Reuters' poll. But that would still be lower than the central bank's estimate of 6.8 per cent.

Economic activity, as measured by gross value added (GVA) which is seen as a more stable measure of growth, is estimated to have expanded 6.2 per cent year-on-year in October-December as compared to 5.6 per cent growth in the previous quarter.

"The improvement is led by a revival in rural demand and a rise in central government capital expenditure," said Gaura Sen Gupta, chief economist at IDFC First Bank Economic Research.

"Urban demand is also showing some signs of improvement, but the recovery remains relatively softer than rural demand," Sen Gupta said.

The National Statistics Office is due to release GDP figures for October-December on Friday at 1030 GMT.

Prime Minister Narendra Modi's government announced personal income tax relief for consumers in the budget announced in February.

The central bank, under newly appointed governor Sanjay Malhotra, has cut interest rates, eased liquidity and delayed tighter financial sector rules as a way to boost growth.

Still, growth is seen remaining sluggish at between 6.3-6.8 per cent in the financial year beginning in April, sharply lower than the 8.2 per cent seen in 2023-24.

"We think the worst is over as far as India's growth trajectory is concerned but, even with the improvement of momentum, overall GDP growth is likely to remain below the potential growth rate of 7 per cent in 2025-26," Deutsche Bank said in a recent note, which forecast growth for the next financial year at 6.5 per cent.

India will continue to retain its tag of the fastest growing major economy, but faces uncertainties over its trade with US and the Donald Trump administration's plans to impose reciprocal tariffs.

"The near-term impact of tariffs on growth might be small, with asymmetric sectoral implications," Radhika Rao, an economist at DBS Bank wrote in a February 25 note.

In the latest quarter, weak urban demand is expected to have weighed on both the manufacturing and services sectors.

"Services sector growth is expected to moderate in the December quarter led by softer growth in trade, hotels and transportation and real estate and financial services," Sen Gupta said in a note last week.

Stronger output in the agriculture sector, however, is expected to provide a boost to growth.

Government expenditure is also seen rising by the double digits during the December quarter after modest 4.4 per cent growth in the previous three months, with capital spending by federal and state governments quickening.

The government will also release revised growth estimates for the financial year ending March 31. A Reuters poll forecast the Indian economy grew at 6.5 per cent in 2024/25, a little higher than the previous official estimate of 6.4 per cent, but the slowest pace in four years.