Agri output likely to propel India's Q4 GDP growth to 4-quarter high

Industrial sector expansion is, however, expected to remain subdued

Growth in the Indian economy likely gained momentum to touch at least a four quarter high in Q4 (January - March) of FY 25 after witnessing moderate growth rates in the preceding three quarters, owing to strong showing in agricultural output that likely lifted rural consumption demand, trade, hotels and transport segment and construction sector, according to analysts.

 

During the first three quarters of FY25, the economy grew at 6.5 per cent, 5.6 per cent, and 6.2 per cent, respectively. The National Statistics Office (NSO) has projected the FY25 growth rate at 6.5 per cent, implicitly assuming 7.6 per cent growth in the fourth quarter of FY25. 

 

The statistics ministry is scheduled to release the provisional estimates of national income for FY25 and GDP data for Q4 of FY25 on May 30. 

 

The NSO will release the Q4 growth numbers and the provisional estimates of gross domestic product (GDP) data for FY25 on Friday.

 

High-frequency indicators like fertiliser sales (5.4 per cent) and domestic tractor sales (23.4 per cent) which can be used as proxy for agriculture sector growth saw sequential uptick during the fourth quarter. Though growth in agri credit (11.3 per cent) moderated, it still managed to remain in double digits.   

 

“We think the agriculture sector growth is likely to show improvement, as suggested by advance estimates of crop production - which show record high wheat production. Accordingly, we estimate agriculture GVA growth at 5.8 per cent in Q4, accelerating from 5.6 per cent in Q3,” said Aastha Gudwani, India chief economist, Barclays.

 

The strong agri output and improvement in real rural wage growth (2.3 per cent) is expected to have supported rural demand in Q4, even as urban demand remains subdued. 

 

“According to the Neilsen IQ survey, rural FMCG sales volume growth remains strong at 8.4 per cent in Q4. That said, there isn’t a uniform improvement in rural indicators with subdued two-wheeler sales and diesel consumption growth,” says Gaura Sengupta, chief economist, IDFC Bank. 

 

Indicators like passenger vehicle sales (2.3 per cent), consumer goods production (1 per cent) and personal loans (14 per cent) which reflect urban consumption moderated during the quarter. 

 

“Real urban wage growth remains in the low single digit. FMCG sales volume growth in urban areas has weakened to 2.6 per cent. Electronic payments indicators also confirm subdued urban demand with slowdown in UPI, credit and debit card transactions growth,” adds Sengupta.  

 

However, high-frequency indicators like domestic air passenger traffic (12 per cent), toll collection (17.2 per cent), E-way bill collections (19.4 per cent) and port cargo traffic (3.7 per cent) which can be used as a proxy for ‘trade, hotels and transport’ segment growth, saw sequential uptick during the fourth quarter. In the services sector, higher steel consumption (11.8 per cent) and cement production (12.4 per cent) during the quarter also reflected improved construction sector growth. 

 

“GDP growth in Q4 is likely to be supported by strong momentum in the hotels & transport segment. Anecdotal evidence shows travel activities were up in Q4 on the back of Kumbh mela and major concerts. [Alongwith] foreign tourist arrivals contracted by 1.3 per cent in Q4, lower than a contraction of 3 per cent in Q3,” said CARE Ratings in a note. 

 

Meanwhile, growth in the industrial sector is expected to remain subdued which can be gauged from proxy indicators like index of industrial production (3.6 per cent) and iron production (7.3 per cent) which saw a slowdown during the quarter.  

 

“Non-financial companies' net profit growth (nominal growth) remains muted (6.5 per cent) in Q4 along with sales growth remaining in low single digits. Margins of producers have likely narrowed with rise in input costs,” said Sengupta.