Indian Economy Shows Resilience Despite Global Headwinds, Growth Likely to Pick Up in Q4
The Indian economy grew at a robust 6.2% in the third quarter (October-December) of FY25, rebounding from a seven-quarter low of 5.6% in the previous quarter (July-September), according to data released by the National Statistical Office (NSO) on February 28. The recovery in GDP growth, though slightly below market expectations, reaffirms the resilience of India’s economic fundamentals amid global uncertainties, trade tensions, and inflationary pressures.
The Q3 GDP growth rate was marginally below the 6.3% median estimate from the MC Poll, but it was sufficient to retain the full-year growth forecast at 6.5%, as per the second advance estimates.
Q3 GDP Growth: Key Highlights and Sectoral Performance
1. India’s Growth Trajectory Shows Recovery
- Q3 GDP Growth (October-December 2024): 6.2%, up from 5.6% in Q2 (July-September 2024).
- FY25 GDP Growth Forecast: 6.5%, reaffirmed by the government.
- Economic growth in Q4 expected to accelerate further, helping India meet its annual target.
2. Government Revises GDP Estimates for Previous Years
The government has revised its GDP growth estimates for the previous fiscal years, indicating a stronger-than-expected performance:
- FY24 GDP Growth revised to 9.2% (up from the 8.2% provisional estimate released in May 2024).
- FY23 GDP Growth revised to 7.6%, an upward revision from the earlier estimate of 7%.
These revisions suggest stronger economic momentum than initially projected, bolstered by higher investments, government spending, and improved private consumption.
3. Sectoral Growth Performance in Q3
- Manufacturing and Industry: The industrial sector showed moderate growth, driven by higher government capital expenditure and infrastructure investments. However, global demand concerns and export weakness weighed on overall growth.
- Agriculture: The agriculture sector recorded slower expansion due to unseasonal weather patterns, impacting rural income and demand.
- Services: The services sector remained the key growth driver, supported by strong performance in finance, real estate, IT, and consumer services.
- Construction and Infrastructure: The government’s focus on infrastructure projects and increased capital spending provided a boost to construction activity.
Q4 and FY25 Outlook: Growth Set to Accelerate
With economic activity picking up, analysts expect GDP growth in Q4 to remain strong, helping India achieve the 6.4% growth target for FY25. The MC Poll of 18 economists predicts India’s GDP to grow at 6.6% in FY26, indicating continued economic momentum.
1. Factors Supporting Growth in Q4 and Beyond
- Government Spending: Increased capital expenditure on infrastructure projects is expected to drive economic activity.
- Fiscal and Monetary Support: Experts anticipate tax rationalization measures and potential policy rate cuts to support demand.
- Resilient Domestic Demand: Urban consumption remains strong, while rural demand is expected to recover with government stimulus.
- Easing Inflationary Pressures: Moderation in commodity prices and food inflation could help sustain purchasing power.
2. Global Headwinds Pose Challenges
Despite domestic resilience, the economy faces external risks, including:
- Slowdown in Global Trade: Export growth remains subdued due to weak global demand and protectionist trade policies.
- Geopolitical Uncertainty: Rising geopolitical tensions and trade restrictions could impact supply chains.
- Foreign Investment Trends: FII outflows have pressured financial markets, impacting capital inflows.
Experts’ Take on India’s Growth Prospects
1. Policy Support to Drive Growth
Economists believe that fiscal and monetary policy easing will help sustain India’s economic expansion.
- “Fiscal measures, including tax cuts and increased public spending, could provide an additional boost to consumption and investment in the coming quarters,” said Aditi Nayar, Chief Economist at ICRA.
- The Reserve Bank of India (RBI) is also expected to keep monetary policy supportive, with potential rate cuts in H2 FY25 if inflation remains under control.
2. Resilient Economic Fundamentals
- “India’s economy continues to demonstrate resilience despite external challenges. With strong domestic demand, infrastructure push, and improving financial conditions, growth momentum is likely to sustain,” said D.K. Joshi, Chief Economist at CRISIL.
- The government’s infrastructure push, combined with improving rural demand and strong urban consumption, is expected to propel growth in FY26.
3. Investment and Employment Growth Remain Key
- Private sector investment has been slow to pick up, despite favorable conditions.
- Employment generation remains concentrated in agriculture and low-productivity sectors, requiring targeted reforms to boost high-value job creation.
- Women’s workforce participation remains low, highlighting the need for gender-focused labor policies.
India’s Economic Outlook: Strong Growth with Challenges Ahead
Despite short-term global risks, India’s economy remains on a solid growth trajectory, driven by strong domestic demand, government investment, and policy support.
Highlights for Investors and Policymakers:
- GDP Growth in Q3 rebounded to 6.2%, after slipping to 5.6% in Q2.
- FY25 growth forecast remains at 6.5%, with further acceleration expected in Q4.
- Government revises FY24 GDP growth to 9.2% (from 8.2%) and FY23 to 7.6% (from 7%).
- Infrastructure and services sectors driving economic recovery.
- Policy support through tax reforms and potential rate cuts may sustain growth.
- Global trade slowdown, inflation, and investment growth remain key challenges.
As India continues its path toward economic expansion, a balanced approach to fiscal policies, private sector participation, and global trade diversification will be crucial to maintaining long-term growth momentum.
The upcoming RBI monetary policy review and government’s fiscal announcements will be closely watched for further cues on India’s economic trajectory in FY26 and beyond.
