Economy expected to grow 6.4% in Q3 FY25 on increased government spending: ICRA

ICRA on Tuesday projected India's GDP to grow 6.4% in the December quarter on account of enhanced government spending amid uneven consumption.

The Indian economy grew at 6.7% in April-June, but it slowed to a seven-quarter low of 5.4% in the September quarter on sluggish government capital expenditure due to general elections and weak consumption demand.

ICRA Chief Economist Aditi Nayar said India's economic performance in Q3 FY2025 benefitted from a sharp ramp-up in aggregate government spending (Centre and state) on capital and revenue expenditure, high growth in services exports, a turnaround in merchandise exports, the 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," Nayar said.

The National Statistical Office (NSO) will release the October- December growth estimates on February 28. It will also release the second advance estimates of GDP for the current fiscal.

In the first advance estimates released in January, NSO projected GDP growth at a 4-year low pace of 6.4% in the current fiscal. The RBI expects growth to be 6.6%.

ICRA has projected the economy to grow at 6.4% in Q3 from 5.4% in Q2, benefitting from enhanced government spending amid uneven consumption, it said in a statement.

India's investment activity improved in Q3, as reflected in the uptick in the YoY growth in several investment-related indicators vis-a-vis Q2, the rating agency said.

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 government's capex surged to a six-quarter high of 47.7% in Q3 from 10.3% in the previous quarter.