India’s GDP growth picks up in Q3 at 6.2%
The latest data also shows the Indian economy crossed a critical psychological threshold when its quarterly nominal GDP crossed the $ 1trillion mark for the first time in a quarter
The Indian economy grew at 6.2% in the quarter ending December 2024, according to data released by the National Statistical Office (NSO) on Friday that also revised upward growth for 2022-23 and 2023-24 to 7.6% (from the earlier 7%) and 9.2% (from 8.2%) , which means the extent of the slowdown in 2024-25 is worse than previously estimated.
To be sure, the latest data also shows that the Indian economy crossed a critical psychological threshold when its quarterly nominal GDP crossed the $ 1trillion mark for the first time in a quarter. Based on an average exchange rate of 84.46 to the dollar, nominal GDP in the December quarter came at just above $ 1 trillion. While the rupee has depreciated significantly in the current quarter, with average exchange rates for January and February being 86.27 and 87.05 , there is likelihood that nominal GDP will stay above the trillion-dollar mark even in the March quarter.
The December quarter’s growth is in line with analyst expectations and also marks a sequential recovery from the 5.6% growth (revised from 5.4%) seen in the September quarter. India’s GDP expected to grow at 6.5% in 2024-25, the ongoing fiscal year. This is ten basis points – one basis point is one hundredth of a percentage point – more than what the first advance estimates released in January said.
On their own, these numbers would make the latest GDP data pretty normal.
However, it is revisions in historical data which have made them extraordinary. India’s GDP growth in 2023-24, according to the first revised estimates released along with the latest quarterly and annual numbers for 2024-25, is now 9.2% instead of the 8.2% which was reported earlier. The 2022-23 GDP growth number now stands at 7.6% instead of 7%. These revisions have two important implications.
The first is vis-à-vis the current quarter which will end in March 2025. For 2024-25 annual GDP growth to meet its 6.5% projection, March quarter GDP will have to grow at 7.6%, significantly higher than most projections.
The latest GDP numbers also mean that the Indian economy has lost 2.7 percentage points in terms of growth momentum between 2023-24 and 2024-25. Even form a supply side perspective, the slowdown is pretty sharp. Gross Value Added (GVA) – it is GDP less net indirect taxes – growth has fallen from 8.6% in 2023-24 to 6.4% in 2024-25. Given the fact that 2023-24 growth was not on account of some favourable statistical base effect – 2022-23 GDP and GVA growth numbers were a healthy 7.6% and 7.2% – it indicates a significant loss of growth momentum in the ongoing fiscal year.
Chief economic adviser (CEA) V Anantha Nageswaran said India remained “the fastest-growing major economy during October-December 2024” driven by domestic demand and exports. “On the strength of the domestic demand, on capital formation and output growth, we will be able to grow at 6.5%, but there are some risk factors,” he said, citing the US dollar’s strength and rising Japanese interest rates that could exacerbate capital outflows.
“Despite the uncertain global outlook, India’s economic momentum is expected to sustain, driven by strong rural demand and a revival in urban consumption,” he added. The current year, 2024-25 has been a year of fiscal tightening amidst an already hawkish monetary policy. The fiscal deficit was brought down from 5.6% in 2023-24 to 4.8% in 2024-25 according to the revised estimates. RBI kept the policy rate unchanged at 6.5% between February 2023 and January 2025 before the February cut of 25 basis points, the first interest rate reduction in five years. The question analysts are asking is whether growth was collateral damage to the succesful effort to control inflation and consolidate fisc? To be sure, this is a question which can only be asked in hindsight. The other question is whether the latest numbers lead to a more dovish outlook by RBI in matters of monetary policy? A fiscal support is ruled out given the ongoing consolidation. This year’s budget has set a fiscal deficit target of 4.4% for 2025-26.
“We expect the GDP growth at 6.5% next fiscal, supported by normal monsoons, lower food inflation and rate cuts of 75-100 basis points in the current cycle that began earlier this month. However, a lower fiscal impulse is expected to cap growth next year. The good news is growth is becoming more balanced as private consumption’s share in GDP rose in fiscal 2025. However, investment’s share has been moderating since fiscal 2024,” said Dharmakriti Joshi, chief economist at Crisil. “The complexity of risks from tariff actions – already initiated and likely to be followed by more such measures in the coming months – is evolving and creates a downside bias to our forecasts,” Joshi added.
Revisions aside, what do the latest GDP numbers tells us?
Quarterly GDP growth has shown some revival from the September quarter (now revised) number of 5.6% to 6.2% in the December quarter. The growth improvement is broad based and spread across sectors. From the demand side, investment has lost momentum while private and government consumption have gained pace. Part of this is understandable given the union budget missing its capital spending target. Private Final Consumption Expenditure (PFCE), Government Final Consumption Expenditure (GFCE) and Gross Fixed Capital Formation (GFCF) grew at 6.9%, 8.3% and 5.7% respectively in the quarter ending December 2024 compared to 5.9%, 3,8% and 5.8% in the quarter ending September 2024.
In the annual numbers, the slowdown between 2023-24 and 2024-25 is spread across all sectors except agriculture and Public Administration, Defence & Other Services. From the expenditure side, the slowdown is despite an increase in PFCE growth from 5.6% in 2023-23 to 7.6% in 2024-25 and a result of GFCE and GFCF losing growth momentum. GFCE growth is expected to decline from 8.1% in 2023-24 to 3.8% in 2024-25. GFCF growth numbers for 2023-24 and 2024-25 are 8.8% and 6.1%.
