Domestic rating agency ICRA has projected India’s gross domestic product (GDP) to grow at 6.4% in the December quarter of FY25, citing enhanced government spending as a key driver. The Indian economy saw a slowdown in the previous quarter due to weak capital expenditure and sluggish consumption, but signs of recovery are emerging.
Domestic rating agency ICRA, a leading Indian credit rating agency, has forecasted that India’s GDP will grow at 6.4% in the third quarter (October-December) of FY25. The growth is expected to be driven by higher government spending, improved export performance, and a recovery in investment activity.
The Indian economy saw a slowdown in the previous quarter, with GDP growth falling to 5.4% in Q2 FY25, a seven-quarter low. The decline was primarily attributed to sluggish government capital expenditure due to the 2024 general elections, weak domestic consumption, and inflationary pressures.
ICRA’s GDP Growth Estimates
According to ICRA Chief Economist Aditi Nayar, India’s economic performance in Q3 FY25 benefitted from:
- A significant rise in aggregate government spending, including capital and revenue expenditure by both the central and state governments.
- High growth in services exports and a turnaround in merchandise exports.
- Healthy agricultural output, boosting rural sentiment.
The government’s capital expenditure (capex) surged to a six-quarter high of 47.7% in Q3, up from 10.3% in Q2, signaling a strong push for infrastructure development.
Official GDP Data Release on February 28
The National Statistical Office (NSO) will release the official GDP data for Q3 FY25 on February 28. Additionally, the second advance estimate for India’s full-year GDP growth in FY25 will be published. In its first advance estimate, NSO had projected a 6.4% GDP growth for the full fiscal year, marking a four-year low.
Meanwhile, the Reserve Bank of India (RBI) expects India’s GDP growth to be 6.6% for FY25, slightly higher than NSO’s estimate.
Investment and Consumption Trends
ICRA highlighted that investment activity in Q3 showed improvement, as indicated by the increase in:
- Capital and infrastructure goods output.
- Cement production and engineering goods exports.
- Government capex growth, which surged significantly from Q2.
Despite uneven consumption trends, sectors like mining and electricity showed recovery after weather-related challenges in the previous quarter.
Q2 GDP Slump Raises Recovery Hopes
India’s GDP growth of 5.4% in Q2 FY25 was the slowest in nearly two years, falling below economists’ expectations. A Mint poll of 25 economists had projected 6.5% growth for Q2, but the slowdown in government spending and weak consumer demand weighed on economic performance.
However, with higher capital expenditure and policy support, economists are optimistic that India’s growth will gain momentum in the second half of FY25.
While India’s economy still faces challenges in consumption and inflation, the ICRA projection of 6.4% Q3 GDP growth suggests a partial recovery from the Q2 slump. The upcoming NSO data on February 28 will provide a clearer picture of the country’s economic trajectory for the rest of the fiscal year.
