India’s Gross Domestic Product (GDP) experienced a notable acceleration in the third quarter (Q3) of the fiscal year 2024-25, covering October to December 2024. The economy expanded by 6.2% during this period, an improvement from the revised 5.6% growth observed in the second quarter (Q2) of FY25.
Key Contributors to Q3 Growth
Government Expenditure: There was a significant increase in government spending, which rose by 8.3% year-on-year. This fiscal stimulus played a crucial role in bolstering economic activity during the quarter.
Private Consumption: Private consumer spending grew by 6.9% compared to the same period last year. This uptick was supported by improved rural demand, partly due to favorable monsoon conditions, and heightened consumer purchases during the festive season. citeturn0news11
Sectoral Performance
- Construction: The construction sector led the growth with an impressive expansion of 8.6%.
- Financial, Real Estate & Professional Services: This sector grew by 7.2%, reflecting increased activities in financial markets and real estate.
- Trade, Hotels, Transport, Communication & Services Related to Broadcasting: These combined sectors saw a growth of 6.4%, indicating a resurgence in service-oriented industries.
- Gross Value Added (GVA): The GVA, which provides a more detailed picture of economic activity by measuring the value of goods and services produced, expanded by 6.2% year-on-year in Q3 FY25, up from 5.6% in the previous quarter.
- Nominal GDP Growth: When accounting for inflation, nominal GDP growth stood at 9.9% for the October-December 2024 period.
Full-Year Projections:
The government has revised its full-year real GDP growth forecast for FY2024-25 slightly upwards to 6.5%. This adjustment reflects optimism about sustained economic momentum, supported by robust private consumption and strategic public investments.
Monetary Policy Implications:
In response to the current economic conditions, the Reserve Bank of India (RBI) implemented a rate cut in February 2025, the first in nearly five years. This monetary easing aims to support growth, especially as inflation has moderated to 4.3% in January 2025.
India’s Q3 FY2024-25 GDP growth of 6.2% underscores a resilient economic recovery, driven by increased government spending, robust private consumption, and strong performances in key sectors such as construction and services. The upward revision of the annual growth forecast to 6.5% reflects confidence in the economy’s trajectory, despite global uncertainties and domestic challenges.
This economic analysis highlights the factors driving the recent GDP growth rebound, though it also acknowledges the challenges in sustaining higher growth rates.
Key Drivers of Growth Rebound
Improved Rural Demand
A strong monsoon led to higher agricultural output, directly boosting rural incomes.
Higher disposable income in rural areas increased consumer spending, positively impacting demand-driven sectors.
Government Infrastructure Spending
Increased capital expenditure on roads, railways, and other public infrastructure projects created jobs and stimulated economic activity.
This spending also had a multiplier effect on industries like construction, cement, and steel.
Festive Season Consumption
The October-December period coincided with major festivals, driving higher spending in retail, automobiles, and consumer goods.
Sectors like e-commerce, travel, and hospitality also saw a surge in demand.
Growth Comparison and Future Projections
Current Growth Rate (6.2%) vs. Last Year (8.6%)
The economy has rebounded, the pace of expansion remains below last year’s levels, signaling a moderation in growth momentum.
GDP Forecast for FY 2024-25
The government now projects a 6.5% GDP growth, slightly up from the previous 6.4% estimate.
Despite this revision, this would be the slowest growth rate in the last four years, indicating structural challenges or external headwinds.
Sector-Specific Performance
- Agriculture: Expected to grow at 4.5% in Q3 FY25, compared to just 0.4% in Q3 FY24, reflecting the positive impact of a good monsoon.
- Consumer-Centric Sectors: Retail, FMCG, and discretionary spending-driven industries benefited from improved consumer sentiment.
- Infrastructure & Manufacturing: Government-led investments played a crucial role in sustaining growth.
Key Takeaways
- Rural demand recovery, public spending, and seasonal consumption helped support GDP growth.
- The growth rate is moderating compared to last year, requiring sustained policy support.
- The revised FY25 GDP estimate suggests cautious optimism but signals slower long-term momentum.
Frequently Asked Questions
What factors contributed to India’s GDP growth of 6.2% in Q3 FY25?
The 6.2% GDP growth in Q3 FY25 was primarily driven by increased government spending, improved rural demand following favorable monsoon conditions, and heightened consumer spending during the festive season.
How did government expenditure influence the GDP growth in this quarter?
Government capital expenditure surged to ₹2.7 lakh crore in Q3 FY25, marking a 30% increase compared to the average of the first two quarters. This significant boost aimed to stimulate economic growth amid uneven household consumption trends.
What role did rural demand play in the GDP growth of Q3 FY25?
Improved rural demand, supported by favorable monsoon conditions and higher Kharif crop yields, positively impacted consumption patterns, thereby contributing to the GDP growth in Q3 FY25.
How did consumer spending during the festive season affect the economy?
Private Final Consumption Expenditure (PFCE), which constitutes 58% of GDP, rose by 6.4% in Q3 FY25, benefiting from festive season demand. This increase in household consumption significantly bolstered economic growth during the quarter.
What sectors experienced notable growth in Q3 FY25?
The services sector showed improvement, supported by higher exports. Additionally, agricultural output remained strong due to favorable monsoons, and manufacturing growth, while modest, contributed to the overall economic performance.
How did the Reserve Bank of India’s policies impact economic growth in this period?
The Reserve Bank of India implemented measures such as cutting interest rates to stimulate growth. These monetary policy adjustments aimed to support economic activity by making borrowing more affordable, thereby encouraging investment and consumption.
What are the projections for India’s annual GDP growth for FY25?
The overall annual growth for FY25 is projected to range between 6.3% and 6.8%, down from 8.2% in 2023-24. This projection considers the current economic momentum and potential challenges, including global trade uncertainties.
How did agricultural performance influence the GDP growth in Q3 FY25?
Agricultural output saw a 5.6% increase, aided by favorable monsoon conditions. This robust performance in agriculture not only enhanced rural incomes but also contributed significantly to the overall GDP growth in the quarter.
reuters.com
What challenges could affect India’s economic growth moving forward?
Despite the positive growth, challenges such as weaker urban demand, potential U.S. trade tariffs, and global economic uncertainties could impact India’s economic trajectory in the coming quarters.
How has the government’s fiscal policy influenced economic growth in Q3 FY25?
The government’s fiscal policy, characterized by increased capital expenditure and personal income tax relief, has played a crucial role in stimulating economic activity. These measures have bolstered public investment and enhanced consumer spending capacity, contributing to the GDP growth observed in Q3 FY25.
Conclusion
In Q3 FY25, India’s GDP growth accelerated to 6.2%, up from 5.4% in the previous quarter. This improvement was primarily driven by increased government capital expenditure, which surged by approximately 30% to ₹2.7 lakh crore, and enhanced rural demand following favorable monsoon conditions. Private Final Consumption Expenditure, constituting 58% of GDP, rose to 6.4%, benefiting from festive season demand. The agricultural sector also experienced a 5.6% increase in output, further bolstering the economy. Despite these gains, urban demand remained relatively subdued.
