Benefitting from enhanced government spending amid uneven consumption, ICRA said, Q3FY2025 GDP is expected to rise to 6.4 per cent from the seven-quarter low of 5.4 per cent in Q2FY25. Further, it added, the growth in the gross value added (GVA) is estimated to record a relatively broad-based improvement to 6.6 per cent in Q3FY2025 from 5.6 per cent in Q2FY2025. This will be driven by the industrial (to +6.2 per cent from +3.6 per cent), services (to +7.7 per cent from +7.1 per cent), and agricultural (to +4.0 per cent from +3.5 per cent) sectors.
On a sombre note, ICRA estimates stated, the GDP and GVA growth in Q3 is foreseen to continue to trail the NSO’s initial growth estimates for Q1 FY2025 (+6.7 per cent and +6.8 per cent, respectively), which had seen some sectors affected by the Parliamentary elections, the Model Code of Conduct, and also the heat wave in some states.
Earlier in December, the Reserve Bank of India (RBI) had projected India’s real GDP growth for Q3FY25 at 6.8 per cent and Q4 at 7.2 per cent.
Per ICRA, the growth in net indirect taxes (in nominal terms) is estimated to ease significantly to low single digits in the quarter from 7.9 per cent in Q2 FY2025. This would be driven by a sharp, albeit base effect-led rise in the YoY increase in subsidy disbursement by the Centre (to +31.1 per cent in Q3 FY2025 from +4.3 per cent in Q2 FY2025; -53.6 per cent in Q3 FY2024; -7.6 per cent in Q2 FY2024). As a result, ICRA said, the GDP expansion would continue to trail that in the GVA in Q3 FY2025 for the third quarter in a row, with a similar trend expected in the full year as well.
Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA, said, “India’s economic performance in Q3 FY2025 benefitted from a sharp ramp-up in aggregate Government spending (Centre + state) on capital and revenue expenditure, high growth in services exports, a turnaround in merchandise exports, healthy output of major kharif crops etc., which would have buffered rural sentiment. Some consumer-focussed sectors saw a pick-up during the festive season, even as urban consumer sentiment dipped slightly, and other sectors such as mining and electricity saw an improvement after weather-related challenges in the previous quarter.”
“Overall, while we expect the pace of GDP and the GVA expansion to rise in Q3 FY2025 relative to the seven-quarter low prints for the previous quarter, marking an upturn, the performance may remain inferior to the NSO’s initial estimates for Q1 FY2025,” she added.
The industrial GVA, according to ICRA estimates, is projected to record a broad-based pick-up to 6.2 per cent in Q3 from 3.6 per cent in Q2, led by manufacturing (to +5.0 per cent from +2.2 per cent), construction (to +9.5 per cent from +7.7 per cent), electricity (to +5.0 per cent from +3.3 per cent), and mining and quarrying (to +2.5 per cent from -0.1 per cent), with the latter two sub-sectors partly benefitting from the easing in rainfall.
Further, investment activity improved during the quarter as reflected in the uptick in the YoY growth in several investment-related indicators vis-à-vis Q2. This includes capital and infrastructure goods’ output, cement production, engineering goods’ exports, and capital spending of the Centre and state governments. The YoY expansion in the GoI’s capex surged to a six-quarter high of 47.7 per cent in Q3 FY2025 from 10.3 per cent in Q2 FY2025.
ICRA said that the YoY growth in the services GVA is expected to pick up to 7.7 per cent in Q3 from 7.1 per cent in Q2FY25.
The pace of YoY expansion of India’s service exports too rose further to 17.5 per cent in Q3 FY2025 from 12.2 per cent in Q2 FY2025. Service exports touched an all-time high of $36.9 billion in December 2024. Moreover, there was a turnaround in merchandise exports to a YoY rise of 3.3 per cent in Q3 FY2025 from a contraction of 4.3 per cent in Q2 FY2025.
The GVA growth of agriculture, forestry and fishing is also expected to rise to a seven-quarter high of 4.0 per cent in Q3 FY2025 (+0.4 per cent in Q3 FY2024) from 3.5 per cent in Q2 FY2025 (+1.7 per cent in Q2 FY2024). This would be buoyed by the healthy increase in kharif foodgrain output as well as a muted base, ICRA concluded.
