ICRA projects India’s Q3 GDP growth at 6.4% on higher govt spending

The economy expanded by 6.7% in April-June but slowed to a seven-quarter low of 5.4% in the September quarter due to sluggish government capital expenditure, linked to the general elections, and weak consumer demand.

According to ICRA Chief Economist Aditi Nayar, economic activity in Q3 FY2025 was supported by a significant increase in overall government spending—both capital and revenue—alongside robust services exports, a recovery in merchandise exports, and strong kharif crop output, which likely bolstered rural sentiment.

While some consumer-focused sectors saw a festive season boost, urban consumer sentiment showed a slight dip.

Meanwhile, sectors like mining and electricity rebounded after weather-related disruptions in the previous quarter.

"Overall, while we expect GDP and GVA growth to pick up in Q3 FY2025 compared to the seven-quarter low in Q2, the performance may still fall short of the NSO’s initial Q1 FY2025 estimates," Nayar noted.

The National Statistical Office (NSO) will release the October-December GDP data on February 28, along with the second advance estimates for the fiscal year.

In its first advance estimates published in January, the NSO projected full-year GDP growth at a four-year low of 6.4%.

The Reserve Bank of India (RBI), however, expects growth to reach 6.6%.

ICRA attributed the projected 6.4% Q3 growth—up from 5.4% in Q2—to increased government spending despite persistent consumption weaknesses.

Investment activity improved during the quarter, as reflected in year-on-year growth in key investment indicators compared to Q2, including capital and infrastructure goods output, cement production, engineering goods exports, and government capital expenditure.

The government’s capital expenditure saw a significant year-on-year increase, surging to a six-quarter high of 47.7% in Q3 from 10.3% in the previous quarter, ICRA said.