India's GDP expected to grow 6.1% in Q3, 6.2% in FY25: Economists

As India navigates through its economic challenges, there is a glimmer of hope on the horizon with the economy poised to rebound in the third quarter of the financial year.

According to a Bloomberg survey of economists, the nation’s GDP is anticipated to grow by 6.2% in the October-December period, bouncing back from a seven-quarter low of 5.4% in the previous quarter.

The Gross Value Added (GVA) is also expected to see an identical uptick. For the fiscal year 2024-25 overall, the GDP growth is estimated at 6.3%, marking the lowest rate in four years, a decline from the robust 8.2% growth witnessed in the prior fiscal year.

This is slightly below the government's first advance estimates, which suggested a 6.4% growth.

Aditi Nayar, Chief Economist at ICRA, notes that the third quarter's performance is bolstered by significant government expenditure on capital and revenue, a surge in services exports, a revival in merchandise exports, and strong yields of key kharif crops, contributing to improved rural sentiment.

The festive season brought a lift to several consumer-focused sectors, although urban consumer sentiment showed a minor decline. Other sectors like mining and electricity demonstrated recovery after facing weather-related challenges in the past quarter.

Gaura Sengupta, Chief Economist at IDFC First Bank, highlights that the growth momentum is expected to continue in the October-December period, underpinned by a resurgence in rural demand and increased central government capital expenditure.

However, the urban demand recovery remains tepid by comparison. ICRA estimates indicate a notable slowdown in the growth of net indirect taxes, influenced by a base-effect-driven rise in the annual increase in subsidy disbursement by the government.

This dynamic means GDP growth is likely to lag behind GVA growth for the third consecutive quarter and potentially for the entire fiscal year as well. Industry experts forecast a mixed picture across sectors, with industry and agriculture leading the improvement, while the services sector is likely to experience moderation.

According to Jahnavi Prabhakar, an economist at Bank of Baroda, the agriculture sector is set to surpass initial growth forecasts, supported by robust rabi season acreage.

The industrial sector is predicted to achieve a 5.9% growth in Q3FY25, although this reflects a slower pace amid a higher base and fluctuating growth, as evidenced by the Index of Industrial Production (IIP).

This slowdown is also attributed to weakened corporate earnings in sectors such as crude oil, steel, and automotive, despite some companies showing improved profit margins. In the services sector, even with a festive boost, some moderation is evident, with an estimated growth of 6.9% for the quarter.

Lower GST collections during this period are likely to temper the growth rate. On a brighter note, the experience economy is anticipated to inject vitality into trade and hospitality arenas.

Prabhakar notes that reduced growth in both deposit and credit expansion compared to the previous year will weigh on financial sector performance. As India sails through these economic waters, diversification and strategic investments will be key in navigating towards more stable growth.