India’s real gross domestic product (GDP) growth for the third quarter (Q3) of financial year 2024-25 (FY25) was 6.2 per cent, according to data shared by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI) on Friday. The rise comes after GDP growth fell to a seven-quarter low of 5.4 per cent in Q2FY25, significantly below estimates.

       This acceleration was driven by strong rural demand, supported by favourable monsoon conditions, and increased government spending.

       The construction sector recorded the highest growth at 8.6 per cent, followed by financial, real estate, and professional services at 7.2 per cent, and trade, hotels, transport, communication, and broadcasting-related services at 6.4 per cent.

       Private final consumption expenditure also rose by 7.6 per cent, reflecting a rebound in consumer spending.

       As a result, the government has revised its full-year real GDP growth projection for FY25 to 6.5 per cent, from 6.4 per cent.

       The sequential slowdown in economic growth has been evident in recent quarters. GDP growth stood at 8.6 per cent in Q3FY24 before declining to 7.6 per cent in Q4FY24. It further moderated to 6.7 per cent in Q1FY25 and dropped to 5.4 per cent in Q2FY25, taking most India-watchers by surprise who hadn't expected such a steep slowdown.

       GDP and inflation forecasts for FY26

       The Reserve Bank of India (RBI) has pegged the annual growth rate at 6.6 per cent for the current fiscal ending March 2025.

       Despite a sluggish first half of FY25, the ministry anticipates a revival in economic activity in the latter half of the year. An uptick in agricultural and industrial output, coupled with resilient rural demand, is expected to support India’s growth trajectory. This momentum could help the economy achieve an expansion of 6.4-6.8 per cent by the end of the financial year.

       Meanwhile, the RBI has pegged GDP growth for FY26 at 6.7 per cent, with quarterly estimates as follows:

       Q1FY26: 6.7 per cent (revised from 6.9 per cent) Q2FY26: 7 per cent (revised from 7.3 per cent) Q3FY26: 6.5 per cent Q4FY26: 6.5 per cent

       That outlook, however, is subject to a number of variables, particularly in the light of global uncertainty provoked by US President Donald Trump's threat of reciprocal tariffs against a slew of countries and trading partners. He has already marked India as one of the worst offenders in terms of tariffs, and should he follow through on his threats, India's economic trajectory could well be thrown into a tailspin. A good monsoon will also play a critical role, given its influence on food inflation, which plays heavily on consumption patterns. Projected lower consumption last year also kept capital expenditure from the private sector on the lower side. For FY26, the government has kept its capex levels at almost the same level as FY25, hoping for India Inc to pull its weight in generating both employment and consumption.

       For inflation, the RBI projects CPI-based inflation, or retail inflation, at 4.2 per cent for FY26, with the following quarterly estimates:

       Q1FY26: 4.5 per cent (revised from 4.6 per cent) Q2FY26: 4 per cent Q3FY26: 3.8 per cent Q4FY26: 4.2 per cent

       For FY25, the inflation projection remains at 4.8 per cent.

       RBI MPC cuts repo rate

       The RBI’s Monetary Policy Committee (MPC) earlier this month cut the repo rate by 25 basis points (bps) to 6.25 per cent, marking the first rate cut in two years. One basis point is one-hundredth of a percentage point. The decision, announced by RBI Governor Sanjay Malhotra during the February MPC meeting (Feb 5-7), was unanimously supported by all members.

       Despite the rate cut, the RBI remains cautious, maintaining a ‘neutral’ stance with an emphasis on aligning inflation with targets while supporting growth.

       India’s PMI slows amid weak services

       India’s composite Purchasing Managers’ Index (PMI) in January 2025 fell to 57.7, marking a 14-month low, indicating a slowdown in private sector activity. Services PMI dropped to 56.5, the lowest since November 2022. Meanwhile, manufacturing PMI rose to 57.7 in January, recovering from a 12-month low of 56.4 in December.

       A PMI above 50 signals expansion, while a reading below 50 indicates contraction.

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