– By Dr Rumki Majumdar
The Q3 GDP was released last week amid concerns of the economy slowing down. A 6.2 per cent year-over-year growth in Q3 FY25 might seem underwhelming at first glance, but let’s not miss the forest for the trees. The GDP data has been revised for the past two years and two quarters this FY. Without the past two years’ revisions, a 6.2 per cent growth would have placed GDP at Rs 46,501 crore. However, we are now at Rs 47169.9 crore—meaning that, without prior revisions, achieving this level from FY24 would have required an average of 7.8 per cent growth in the three quarters of FY. Deloitte has maintained an optimistic outlook throughout, consistently projecting higher-than-market forecasts this fiscal year. The encouraging news? The economy is outperforming even our expectations.
Simply put, our GDP level today is much stronger than previously estimated. And when it comes to the growth rate, the 6.2 per cent figure this quarter is being measured against a higher base—following a strong 9.5 per cent growth this quarter last year.
Nevertheless, an average growth of 6.1per cent in the first three-quarters of FY25 does point to some slowdown as against the strong growth of the past two years that we now know of. In fact, the revised GDP for FY24 to 9.2 per cent yoy (up 100 bps) makes it the highest growth in 12 years (except for the post-COVID year). But let us not miss the sight of the subtle underlying strengths that matter.
This year being the national election year, and a period of heightened global uncertainties (because of US elections and results, China’s stimulus to boost its economy, and the escalation of regional tensions), India has had a lot of headwinds to deal with. The only source of strength for India is its domestic demand. And, data suggests there’s a lot to cheer on that front.
Not only, consumer spending growth (at 6.9 per cent) has consistently improved over the quarters, there are several signs that it is becoming more broad-based. Rural demand is supported by strong agriculture output growth (5.6 per cent). The total number of ITR filers has grown to over 9.05 crore, marking a 6.8 per cent increase compared to the previous fiscal year, indicating more individuals moving into the middle- and high-income brackets. Besides, the number of high-income (>Rs 1 crore) population is on the rise; this segment has risen 43 per cent in the fiscal year 2024-25 from the previous year’s figures.
We expect this trend to continue. With the tax exemptions aimed at boosting the consumption of the middle class, we expect consumer spending to remain strong in the quarters ahead.
Government spending is also up, at 8.3 per cent in Q3. Alongside, government capex utilisation took a big leap in December 2024, when it grew 61.7 per cent of budgeted capital expenditures, up from 46.2 per cent until November 2024.
A boost in government capex will help generate income and attract private investments, which have been slowing down this FY. Growth in gross fixed capital formation was 5.66 per cent in Q3. We believe rising consumption spending and improved infrastructure would aid investors to scale up production soon. Encouragingly, the investment appetite remains strong. CMIE data shows that new capex proposals soared to Rs 6 trillion in January 2025, nearly three times the Rs 2.1 trillion in December 2024. With net corporate profits improving to 10.8 per cent in Q3, inflation easing, and RBI rate cuts lowering borrowing costs, a revival in private investment appears inevitable.
The CMIE data also highlights that a majority of these new capex investments have been into energy, machinery and electronics, and chemicals. This is probably a silver lining for the secondary sector, whose growth has remained modest over the past three quarters. In Q3, the secondary sector grew at 4.8 per cent, while manufacturing grew 3.5 per cent.
But let the numbers not overshadow the fact that the manufacturing sector is steadily moving up the value chain. Exports of engineering goods, electronics, pharmaceuticals, and inorganic chemicals have surged to their highest levels in history, signaling a move toward higher-value manufacturing.
High manufacturing exports in the high-value-added segments and the depreciation in currency against the dollar boosted exports to grow at 10.4 per cent—the highest growth since 2022. Steady growth in the services sector, at 7.4 per cent, also contributed to the strong export growth observed in the quarter.
These inherent strengths give the confidence that India is gradually building on its resilience amid global challenges, such as rising trade and policy uncertainties. Amidst capital outflows and a strengthening dollar, India’s growing domestic demand and diversified economy position it well to navigate these challenges. The government’s proactive measures to boost consumption, efforts to improve ease of doing business and focus on trade and investment will help India tide through global uncertainties.
(Dr Rumki Majumdar is Economist at Deloitte India.)
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