India’s GDP growth gained momentum in Q3 FY25, expanding at 6.2%, driven primarily by robust performances in the Agriculture and Services sectors on the supply side, and strengthened Private and Government consumption on the expenditure side. Notably, GDP growth for the previous two years was revised sharply upwards, with FY24 growth now estimated at 9.2% (from 8.2%) and FY23 at 7.6% (from 7.0%). The advance estimate for FY25 was also revised marginally higher to 6.5% from the earlier 6.4%. This revision implies an aggressive 7.6% growth expectation for Q4, which, while ambitious, is likely to be supported by a revival in rural consumption, stimulus from the Maha Kumbh event, and increased government expenditure.
Q3 FY25 GDP – Production Side Analysis
Agricultural output exhibited strong growth at 5.6%, buoyed by a robust Kharif harvest. Industrial sector growth accelerated to 4.5% in Q3, up from 3.8% in Q2, led by Manufacturing (4.5%) and Electricity (5.1%). However, Construction growth, while still solid at 7.0%, moderated from Q2 levels. The Services sector saw an uptick to 7.4% from 7.2%, with the Trade, Hotels, and Transport sub-sector expanding by 6.7%, compared to 6.1% in Q2. Meanwhile, growth in Financial Services (7.2%) and Public Administration (8.8%) remained unchanged from the previous quarter.
Sectoral contributions to incremental GVA growth in Q3 reflected these trends:
Agriculture: 16.0%
Industry: 21.0% (Manufacturing contributing 9.0%, Construction 10.0%)
Services: 62.0% (Trade & Hotels 21.0%, Financial Services 23.0%)
Q3 FY25 GDP – Expenditure Side Analysis
The expenditure-driven growth was fueled by a rebound in Private Consumption, which expanded by 6.9%, up from 5.9% in Q2. Government Consumption saw an even sharper acceleration, rising to 8.3% from 3.8% in the previous quarter. However, Investment growth softened slightly to 5.7% from 5.8%, despite a significant increase in Central Government spending (47.0% YoY as per the monthly CAG report). This suggests that private capital expenditure remained subdued in Q3. Contribution to GDP growth was as follows:
Private Final Consumption Expenditure (PFCE): 66.0%
Investments: 29.0%
Nominal GDP growth for Q3 stood at 9.9%, reflecting the broader economic recovery.
Outlook for the Coming Quarters
Several factors are poised to support growth in the upcoming quarters:
Fiscal Policy Support: Government-led infrastructure spending and consumption-driven policies will sustain momentum.
Monetary Policy Shift: The RBI’s expected policy pivot should lower both policy and market interest rates, facilitating credit growth.
Liquidity Enhancements: The RBI’s proactive liquidity management through OMOs, VRRs, and swaps will ensure adequate market liquidity.
Banking Credit Growth: A resurgence in bank credit will further drive investment and consumption.
However, global macroeconomic uncertainties remain elevated, particularly with rising protectionist policies, including potential tariff escalations under former U.S. President Donald Trump’s leadership. Such geopolitical and trade-related risks could weigh on India’s external sector performance.
Given these factors, our GDP growth estimate for FY25 remains unchanged at 6.4%.
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