India GDP Preview: Q3FY25 Growth - A Tepid Rebound
India's GDP saw a slight recovery in the last quarter of 2024, growing at 6.3% due to increased government spending. This rebound, however, still falls short of previous highs, reflecting the economy's reliance on state intervention amid weak private sector and consumer activity. Despite fiscal efforts to boost infrastructure and reduce corporate taxes, private investment remains sluggish, largely due to ongoing concerns about future demand.
India’s economy is showing signs of a modest rebound. In the final quarter of 2024, GDP is expected to have expanded by 6.3%, yr/yr in Q3 FY25. This represents a recovery from the sluggish 5.4% growth in the preceding quarter, yet it remains a far cry from the vigorous 8.2% average seen in the previous fiscal year. The resurgence, driven largely by a surge in government spending, highlights the central role of state intervention in propping up the economy amid faltering household demand.
Last year, a confluence of national elections compelled the government to tighten its purse strings, particularly curtailing infrastructure investments—a critical engine of growth. This fiscal constraint dovetailed with a sizeable exodus of foreign capital from India’s stock markets, further dampening economic prospects.
As the government loosened the fiscal reins during the quarter, spending rose sharply, hinting at a rebound. Yet, this revival has a tenuous feel. The increase in government outlay, while necessary, underscores a worrying dependency: without sustained state support, the economy's momentum wanes. Moreover, the usual uptick in consumption associated with India’s festive season from October to December failed to materialize at expected levels. Persistent inequality—where the richest 1% of the population now controls a greater share of wealth than at any point in the last six decades—mutes consumer spending.
The government’s attempts to kick-start private sector investment through corporate tax reductions and increased infrastructure spending have yet to yield significant dividends. The corporate sector’s tepid response, characterized by a reluctance to invest, mirrors a broader anxiety about future demand. High frequency indicators suggest that Q4 FY25 will also be subdued compared to last year given sustained investment outflows in January and February. As a consequence, real GDP growth is expected orange between 6.3-6.7% yr/yr in Q4FY25 and FY26 as well.