India's economic growth accelerated in the October to December quarter as rural consumption improved following a strong monsoon and government spending increased. Asia's third-largest economy experienced a sharp slowdown in the July-September quarter, with GDP growth falling to 5.4%, the slowest pace in seven quarters. Economists blamed the slowdown on weak urban demand and government spending delays caused by last year's national elections.
According to a Reuters poll, GDP increased by 6.3% in the three months to December compared to the same period last year. However, that would be lower than the central bank's estimate of 6.8%.
Economic activity, as measured by gross value added (GVA), which is considered a more stable measure of growth, is expected to grow 6.2% year on year in October-December, up from 5.6% in the previous quarter.
"The improvement is led by a revival of rural demand and a rise in central government capital expenditure," said Gaura Sen Gupta, chief economist at IDFC First Bank Economic Research.
"Urban demand is also showing some signs of improvement, but the recovery remains relatively softer than rural demand," Sen. Gupta said.
The National Statistics Office will release GDP figures for October-December on Friday at 1030 GMT.
The government of Prime Minister Narendra Modi announced personal income tax relief for consumers in its February budget.
To boost growth, the central bank, led by newly appointed governor Sanjay Malhotra, has cut interest rates, eased liquidity, and delayed tighter financial sector rules.
Still, growth is expected to remain sluggish at 6.3-6.8% in the fiscal year beginning in April, significantly lower than the 8.2% seen in 2023-24.
"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% in 2025-26," Deutsche Bank said in a recent note, forecasting growth for the next fiscal year at 6.5%.
India will maintain its status as the fastest growing major economy, but its trade with the United States is uncertain, as are the Trump administration's plans to impose reciprocal tariffs.
"The near-term impact of tariffs on growth might be small, with asymmetric sectoral implications," Radhika Rao, an economist at DBS Bank, wrote in a February 25 note.
In the most recent quarter, weak urban demand is expected to have weighed on both the manufacturing and service sectors.
"Services sector growth is expected to moderate in the December quarter led by softer growth in trade, hotels and transportation and real estate and financial services," Sen Gupta said in a note last week.
However, stronger agricultural output is expected to boost growth.
Government spending is also expected to rise by double digits in the December quarter, following a modest 4.4% growth in the previous three months, with capital spending by the federal and state governments increasing.
The government will also present revised growth projections for the fiscal year ending March 31. A Reuters poll predicted that the Indian economy would grow at 6.5% in 2024/25, slightly higher than the previous official estimate of 6.4% but at the slowest pace in four years.
