India Q3 GDP: Indian economy grew 6.2% in December quarter, FY25 growth pegged at 6.5%

New Delhi: India’s economic growth engine showed some spark in the December quarter to recover from a low in the September quarter. Yet, the 6.2% GDP (gross domestic product) growth reported was the slowest since Q4FY23, barring one quarter—the previous one (Q2), when it recorded 5.6% (revised estimate).

That leaves much to be done in the final quarter of the fiscal to achieve the full-year revised growth target of 6.5% put out by the National Statistical Office on Friday. To be sure, even at 6.5%, GDP growth for FY25 would be 270 basis points (bps) lower than last fiscal’s (revised) 9.2%.

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The third quarter’s growth rate, supported by government spending and consumption amid festive demand, was still far from the 9.5% (revised estimate) recorded in the corresponding quarter of the previous fiscal. A mint poll of 23 economists had predicted 6.3% growth for Q3.

Meanwhile, gross value added (GVA), which measures the total value of goods and services produced in an economy, also grew 6.2% in Q3.

Tepid growth in manufacturing and mining impacted overall GDP growth in Q3, despite high growth recorded by agriculture, electricity, construction and tertiary sectors.

Chief Economic Advisor V. Anantha Nageswaran remained positive during a presentation following the release of the latest GDP data. While he noted that global economic uncertainty persists due to trade policies, inflation risks, and market volatility, India’s growth momentum remains strong.

Nageswaran said that factors like robust rural demand, recovering urban consumption, and favourable agricultural conditions should help stabilize food inflation. Additionally, the Union budget’s focus on agriculture, MSMEs, investments, and exports is expected to bolster India’s medium-term economic prospects, he added.

To be sure, India remains one of the world’s fastest-growing major economies.

The government has made some revisions to key GDP data. Q1 and Q2 GDP growth rate of FY25 have been revised to 6.5% and 5.6%, from 6.7% and 5.4%, respectively. And the real GDP growth rate for fiscal year FY24 was revised to 9.2% from the earlier estimate of 8.2%, while the FY23 growth rate was revised to 7.6% from 7.2%.

"Despite the sharp upward revisions to the last two years’ GDP figures, FY25 figures appear to have remained resilient—although led largely due to the upward revisions to the second quarter figures," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

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Economists’ views

Some economists expect India’s FY25 GDP growth to be lower than the RBI and NSO outlook because of the comparatively slow economic growth in the first three quarters of the fiscal year.

"We expect the FY25 GDP figure to be lower than CSO’s (Central Statistics Office) estimate by around 20-30bp (basis points). Further, we expect FY26 growth of around 6.4% but the outlook remains heavily clouded with downside risks amid global trade uncertainties," Bhardwaj said.

A back-of-the-envelope calculation suggests GDP growth will have to average 7.6% in the final quarter of the year to align with the NSO's second advanced estimate. Further analysis implies a sharp jump in private final consumption expenditure to 9.9% in Q4 from 6.9% currently, followed by a modest rise in gross fixed capital formation.

Some economists project Q4 GDP growth at 6.5-6.9%, driven by government spending and rural consumption, with full-year FY25 growth expected at 6.3%, slightly below the NSO's 6.5% target.

"Given the revisions, the Q3 FY2025 print, and the SAE (second advanced estimates) of 6.5% for FY2025, the GDP is implicitly estimated to grow by 7.6% in Q4 FY25," said ICRA's Chief Economist, Aditi Nayar.

"This, we believe, is slightly on the higher side given the global uncertainties surrounding merchandise exports and commodity prices, which would affect corporate margins, as well as subdued prints for sectors such as electricity and coal for January 2025," Nayar added.

Despite sluggish growth, with GDP expanding 6.1% in the first nine months, economists remain optimistic that future revisions will help meet the FY25 target.

Manoranjan Sharma, chief economist at Infomerics Valuation & Rating Ltd, and former chief economist at Canara Bank, said India’s private consumer spending rose during Q3, compared to the first two quarters, on improved rural consumption following a good monsoon, moderating food prices, and higher government spending by the Centre and states, among other factors.

"While the worst is over for India’s economic growth, global uncertainties and volatile energy prices remain key risks. India remains the fastest-growing major economy, but the growth falls short of expectations," he added.

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Sector-wise performance

Coming to sectors, manufacturing grew by 3.5% in Q3, higher than 2.1% in Q2, but lower than the 14% and 7.5% recorded during Q4FY24 and Q1FY25, respectively.

As for other sectors, agriculture, mining, hospitality, transport, broadcasting services and communications reported higher sequential growth in the third quarter.

Agriculture reported a 5.6% growth in Q3, against 1.5% growth in the same period of the previous year and 4.1% growth in the September quarter.

Mining rose 1.4% in Q3, after contracting by 0.3% in Q2, and from a 4.7% growth in the year-ago period.

Construction sector growth slowed to 7% in Q3 from 8.7% growth in the previous quarter and 10% in the year-ago period.

Utility services such as electricity, gas, and water supply grew at 5.1% in the latest quarter, up from a 3% growth in Q2, though remaining below the 10.1% growth registered in the year-ago period.

Hospitality, transport and broadcasting services reported a 6.7% growth in Q3, up from a 6.1% growth in Q2 though remaining below the 8% growth registered in the year-ago period.

Export growth (goods and services) rose by 10.4% year-on-year (y-o-y) in Q3, up from 2.5% in Q2 and 3% in the year-ago period.

Imports contracted by 1.1% in Q3, compared to a 2.5% contraction in Q2, and 11.3% growth in the year-ago period.

"Exports growth (goods and services) jumped to a seven-quarter high of 10.4% y-o-y in 3QFY25. They were driven by services exports which witnessed a robust growth (in rupee terms) of 19.2% y-o-y (at a seven-quarter high), while merchandise exports (in rupee terms) were up 4.8% y-o-y in 3QFY25 after declining in the preceding quarter," said Paras Jasrai, senior economic analyst at India Ratings & Research.

"The imports fell 1.1% y-o-y in 3QFY25 which was the third successive quarter of contraction. The net exports have provided support to the GDP growth for the fourth straight quarter in 3QFY25," he added.

Unfavourable base effect

Economists blamed the relatively slow GDP growth in the third quarter also on unfavourable base effect where the numbers for the last year's same quarter revised upwards from 8.6% to 9.5%, among other reasons.

While the revised estimates show an upward shift in both real and nominal GDP growth, real GDP growth, now projected at 7.6% in 2022-23, 9.2% in 2023-24, and 6.5% in 2024-25, reflects a sharp 2.7 percentage point (pps) decline in FY25 against FY24.

Meanwhile, nominal growth estimates have also been raised to 14%, 12%, and 9.9% for these post-COVID years (FY22, FY23 and FY24 respectively), highlighting that the recovery was previously underestimated.

"The 3Q 2024-25 growth is estimated at 6.2% implying a required growth of 7.6% in Q4 2024-25 to deliver an annual GDP growth of 6.5% in 2024-25. Going forward, the budget assumption of a nominal GDP growth of 10.1% for FY26 appears realistic. We may also consider the midpoint of the real GDP growth at 6.55%, which is 6.6% of the range given in the economic survey of 6.3 to 6.8% as feasible," said D.K. Srivastava, chief policy advisor at EY India.

"In terms of demand segments, the second advanced estimates for 2024-25 confirm that the main reason for the fall in growth from 2023-24 to 2024-25 is the weakening growth in investment demand, which fell from 8.8% to 6.1%, and that in government final consumption expenditure, which fell from 8.1% to 3.8% in this period," Srivastava added.

GVA growth rises

Gross value added (GVA), which measures the total value of goods and services produced in an economy, grew by 6.2% in the December quarter, up from 5.8% in the previous quarter but below 8% in the year-ago period.

GVA growth in the first quarter was 6.5%.

On the expenditure side, private final consumption expenditure (PFCE), a proxy for private consumption, grew by 6.9% annually in the December quarter, up from 5.9% in the previous quarter and 5.7% in the year-ago period.

However, government final consumption expenditure (GFCE), a proxy for investment, showed strong growth at 8.3% in Q3, up from 3.8% and -0.5% in Q1 and Q2, respectively, indicating an increase in government expenditure following disruptions in government spending due to the national election during the first half of the year.

The GVA growth stood at 2.3% in the year-ago period.

Meanwhile, Gross fixed capital formation (GFCF), which indicates the total investments made in the economy, slowed to 5.7% in Q3, down from 5.8% in Q2 and 9.3% in the year-ago period.

Discrepancy expenditure contracted 2.2% in Q3, against 0.4% contraction in Q2 and 0.4% growth in the year-ago period.

GDP or Gross Domestic Product measures the total value added from a country's production of goods and services over a specific period.

Payal Bhattacharya contributed to this story