India's Q3 GDP Growth At 6.2%. Is The Worst Over?

The slight improvement, though, belied the Reserve Bank of India's (RBI's) projected growth rate of 6.8 per cent for the third quarter.

The country’s economy expanded on the back of higher rural consumption and increased spending by the government. What may comfort policymakers is the improvement in Private Final Consumption Expenditure (PFCE), which is expected to increase by 7.6 per cent in the current financial year, compared to 5.6 per cent in 2023-24.

According to the second estimate of GDP figures of the 2024-25 fiscal year, released by the Ministry of Statistics & Programme Implementation (MoSPI), the real GDP growth rate has been revised upward and is estimated to now grow by 6.5 per cent.

This would mean that India needs to grow at 7.6 per cent in fourth quarter of this fiscal year. India's manufacturing sector, critical for job creation grew 3.5 per cent in the October-December quarter, something that will cause concerns for the policymakers. 

The first advance estimate released in December projected India's real GDP growth rate at 6.4 per cent. In contrast, India had registered an economic growth of 9.2 per cent in 2023-24.

As per the second advance estimate, the nominal GDP — calculated at current prices — is expected to clock a growth rate of 9.9 per cent in 2024-25. In the previous fiscal year, it was 12 per cent.

The gross value added (GVA) — which does not take into account indirect taxes and subsidies — stood at 6.2 per cent for the third quarter. For the full fiscal year, the GVA growth rate is expected to be 6.4 per cent.

India’s Growth Rate Compared to Other Economies

While China’s growth rate in the October-December quarter was 5.4 per cent, Vietnam’s  economy expanded by 7.55 per cent.

Vietnam, with its investor friendly environment, has turned out to be a major competitor for India. Several analysts said the country, which has lower labour costs and higher ease of doing business, is becoming an attractive investment destination for several companies looking at a China Plus strategy.  

With geo-economic risks rising amid fresh tariff threats from the Donald Trump administration, India needs to up its game and remain watchful.

The Economic Survey, presented this year, underlined the need to go in for deregulation to boost and sustain growth. It also said that growth in the first half of the ongoing financial year was supported by agriculture and services, with rural demand improving on the back of record kharif production and favourable agricultural conditions. It noted that “the manufacturing sector faced pressures due to weak global demand and domestic seasonal conditions”.

India Is Betting On Improved Consumption

Finance Minister Nirmala Sitharaman, in her Union Budget this year, announced massive tax benefits for the middle class to boost consumption. Though the government is expected to forgo a total revenue of about Rs 1 lakh crore in direct taxes as a result of the tax cuts, it is betting on improved consumption to drive economic growth.

Earlier this month, the RBI reduced the repo rate — the rate at which banks borrow from the central bank — by 25 basis points, from 6.50 per cent to 6.25 per cent, a move that will make loans cheaper and thereby spur consumption.

A report prepared by Deutsche Bank analysts has said that the worst is over for India.

"We think the worst is over as far as India's growth trajectory is concerned but even with the improvement of momentum, overall GDP growth is likely to remain below the potential growth rate of 7 per cent in FY26," the bank's analysts said.