India's economy accelerated its growth to 6.2% during the October to December quarter of FY25, indicating signs of recovery from previous economic slowdowns.
According to the latest figures released by the National Statistics Office (NSO), this growth marks an increase from the 5.6% recorded in the previous quarter. While this uptick is positive, it remains significantly lower than the 9.5% growth witnessed during the same quarter last year.
The NSO's report is underpinned by revisions to prior fiscal data, indicating India's GDP growth for the full fiscal year 2024-25 is projected at 6.5%, slightly above the January estimate of 6.4%. Notably, the economic growth for FY24 has seen substantial upward revision from 8.2% to 9.2%, providing incentive for optimism.
With the average GDP growth for the first three quarters of FY25 calculated at 6.1%, achieving the full-year growth target means the economy must expand at 7.6% during the fourth quarter. Chief Economic Adviser V Anantha Nageswaran explained three factors likely to support this growth: increased export performance (which is currently up nearly 10% for the April to January period), continued capital expenditures by the government, and substantial spending associated with the Mahakumbh festival, where millions gathered and contributed to economic activity.
The performance of various sectors also paints a mixed picture. Agriculture has shown strong growth, around 5.6%, supported by improved kharif crop outputs. This indicates resilience within the rural economy, expected to be one of the key growth drivers moving forward. Conversely, the manufacturing sector remains subdued, with growth dipping to 3.5% compared to 14% the previous year, largely due to constrained corporate profits and urban consumption challenges.
Investment spending, as measured by Gross Fixed Capital Formation (GFCF), reflected weakness as well, slowing to just 5.7% this quarter from earlier higher rates. This decline may indicate broader issues with private sector investment. Gaura Sen Gupta, Chief Economist at IDFC First Bank, highlighted the low investment-to-GDP ratio, which has fallen to 31.9%, the lowest level seen since 2019.
The services sector continues to be one of the economy's stronger components, growing at 7.4%, buoyed by public services and defense—a sector forecasted to maintain its momentum. Nevertheless, manufacturing's lack of growth remains concerning. Analysts are increasingly cautious, noting how external factors such as geopolitical risks may dampen investor sentiment and consumer spending, potentially impacting the overall growth forecasts.
Despite these challenges, the trend suggests some optimism. Inflation has moderated, dropping to 4.3% this January, compared to higher levels last year, which is expected to positively influence real wages and support consumption growth. The central bank is also anticipated to make additional cuts to interest rates to stimulate continued growth, with potential cuts expected as early as April.
Economists reflect on the uncertainty surrounding future growth, with HDFC Bank's senior economist, Sakshi Gupta, indicating potential for the Reserve Bank of India (RBI) to lower rates to adapt to changing economic conditions. The government is revising its fiscal deficit target down to 4.8% of GDP for FY25, which may provide additional room for fiscal spending to encourage consumption.
Looking forward, it's clear the Indian economy is at a crossroads. Strong agricultural performance and improving consumption metrics stand against the backdrop of weaker manufacturing and private investment sectors. Stakeholders remain hopeful but cautious about achieving aggressive growth targets amid fluctuated external conditions and the domestic economic environment.
Overall, the growth figures from the NSO reflect both challenges and opportunities. Whether India can maintain this growth momentum and address the underlying issues affecting investment and manufacturing will be pivotal as it moves toward the next fiscal year.