India’s Economic Growth Shows Signs of Recovery After Q2 Slowdown But FY25 Outlook Remains Subdued

India’s economic growth may have picked up in the third quarter following a slowdown in the July-September period, as business activity has improved, Economic Times reported citing economists.

However, growth for the financial year is projected to remain below FY24’s 8.2 per cent, with estimates for FY25 already being revised downward. The government is set to release its first advance estimates for FY25 GDP on Tuesday (7 January).

India’s GDP grew at a seven-quarter low of 5.4 per cent in the September quarter, prompting a wave of corrections in growth forecasts.

Gross value added (GVA) growth also slowed to 5.6 per cent, down from 6.8 per cent in the preceding quarter.

“While overall economic activity did lose momentum in the second quarter, particularly in August and September, most high-frequency indicators suggest that growth has bottomed out,” said Aastha Gudwani, India chief economist at Barclays.

Madan Sabnavis, chief economist at Bank of Baroda, concurred, suggesting that cumulative indicators show an upward trend.

Unified Payments Interface (UPI) transactions averaged Rs 22.8 lakh crore per month in the third quarter, up from Rs 20.6 lakh crore in the second quarter, according to data from the National Payments Corporation of India (NPCI).

Similarly, Goods and Services Tax (GST) collections rose to an average of Rs 1.82 lakh crore per month during October-December, compared with Rs 1.77 lakh crore in the previous quarter.

Government spending, which had slowed in the first half of FY25 due to general elections, also picked up in the third quarter.

“The infrastructure segment is showing a modest pace of activity, with government capital expenditure expected to pick up,” said Paras Jasrai, senior analyst at India Ratings and Research, which projects GDP growth at 6.5 per cent for the third quarter.

However, the manufacturing Purchasing Managers’ Index (PMI) fell to a 12-month low of 56.4 in December, with the quarterly average also lower at 56.8, compared to 57.4 in the preceding three months.

Barclays forecasts a one-percentage-point improvement in GDP and GVA growth in Q3 compared to Q2.

Despite these gains, economists expect growth to fall short of the Reserve Bank of India’s FY25 projection of 6.6 per cent. “The extent of improvement in the third quarter will not push GDP growth to 7 per cent in the second half of the year,” said Sakshi Gupta, principal economist at HDFC Bank.

Rural demand remains muted, with work demand under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) increasing by 8.3 per cent year-on-year to 21.6 million in December.

Urban growth is also slowing due to weakening wage growth, according to IDFC First Bank chief economist Gaura Sengupta.

For FY25, HDFC Bank predicts growth at 6.4 per cent, while Bank of Baroda forecasts 6.5-7 per cent.

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