India’s Q3 GDP Growth Report: Economic Analysis and Outlook

Faster Economic Growth in Q3 FY25

The Indian economy witnessed faster growth of 6.2% during the third quarter of FY25, higher than the upwardly revised 5.6% growth in the last quarter. The growth was led mainly by better rural consumption after a good monsoon and higher government spending on infrastructure.

This good run notwithstanding, the growth rate still lags behind that of 9.5% posted in the corresponding quarter of the previous year. The economic performance was also below the Reserve Bank of India’s (RBI) estimate of 6.8% for the quarter.

Government Growth Forecast and Challenges

The government has lowered its GDP growth estimate for FY25 to 6.5%, from the high 9.2% growth in FY24. This would be a four-year low for the Indian economy if it is achieved. Chief Economic Advisor V. Anantha Nageswaran said India needs to clock a 7.6% growth in Q4 to hit the full-year target, something he feels can be done with the expected revival in exports and public capital spending.

Sector-Wise Performance

Agriculture: Logged a strong expansion of 5.6% YoY, from 1.5% in the previous year, attributed to overrains and a bumper crop.

Manufacturing: Slowed markedly, rising 3.5% YoY, from 14% in the previous year.

Construction: Increased by 7% YoY, from 10% in the last year.

Industrial Sector: Recorded 4.5% growth YoY, much lower than 11.8% in the last year.

Services Sector: Grew 7.4% YoY, down marginally from 8.3% last year.

Trade and Hotels: Moderated to 6.7% YoY from 8% during the same period last year.

Private Consumption and Government Spending

Private consumption expenditure increased to 6.9% YoY, from 5.9% in the last quarter, due to higher rural demand, falling food prices, and increased spending during the festival season. The government also stepped up capital spending on infrastructure, laying out Rs 2.7 lakh crore on roads, ports, and highways in the quarter. This was a sharp pick-up, with 61.7% of the budgeted capital expenditure spent in the first nine months of FY25.

Global Trade Risks and Prospects

India’s economic growth prospects are jeopardized due to potential US tariffs on trade imposed by the government of Donald Trump, which will disrupt global channels of trade. The impact can be contained short-term, but sectoral impacts may emerge thereafter. In addition, the RBI reduced India’s FY24-25 growth projection to 6.6% from 7.2% due to the continued slowdown of the economy.

India must sustain an average growth rate of 7.8% over the next decades in order to become a high-income country and fulfill its ambitious vision of becoming the world’s third-largest economy by 2030, the World Bank said.

Conclusion

While India is still the fastest-growing economy, maintaining higher growth rates will be crucial to achieving long-term economic ambitions. With prudent public expenditure, agricultural growth, and anticipated export revival, the nation is poised for moderate growth. Trade threats, inflationary pressures, and global economic uncertainty, however, are major threats to future growth opportunities.