With improved government expenditure and uneven consumption, Q3FY2025 GDP is predicted to increase to 6.4% from Q2FY25’s seven-quarter low of 5.4%, according to ICRA. The gross value added (GVA) growth rate is also predicted to show a comparatively broad-based improvement, rising from 5.6% in Q2FY2025 to 6.6% in Q3FY2025. The industrial (up 6.2% from 3.6%), services (up 7.7% from 7.1%), and agriculture (up 4.0% from 3.5%) sectors will be the main drivers of this.
The GDP and GVA growth in Q3 will continue to lag behind the NSO’s initial growth estimates for Q1 FY2025 (+6.7% and +6.8%, respectively), according to ICRA estimates. This is a sobering note, as some sectors were impacted by the Model Code of Conduct, the parliamentary elections, and the heat wave in some states.
The Reserve Bank of India (RBI) had earlier in December forecasted that India’s real GDP growth would be 6.8% in Q3FY25 and 7.2% in Q4.
According to ICRA, net indirect tax growth (in nominal terms) is expected to drop from 7.9% in Q2 FY2025 to low single digits this quarter. The Center’s YoY growth in subsidy disbursement rose sharply, albeit due to base effects (to +31.1% in Q3 FY2025 from +4.3% in Q2 FY2025; -53.6% in Q3 FY2024; -7.6% in Q2 FY2024). For the third consecutive quarter, the GDP expansion would lag behind the GVA in Q3 FY2025, according to ICRA, and a similar pattern is anticipated for the entire year.
ICRA expects that the industrial GVA will increase broadly from 3.6% in Q2 to 6.2% in Q3, with manufacturing (up +5.0% from +2.2%), construction (up +9.5% from +7.7%), electricity (up +5.0% from +3.3%), and mining and quarrying (up +2.5% from -0.1%) leading the way.
Additionally, the quarter saw an improvement in investment activity, as seen by the YoY gain in several investment-related indicators compared to Q2. This covers the output of capital and infrastructure items, cement manufacturing, exports of engineering goods, and capital expenditures by the federal government and state governments. In Q3 FY2025, the YoY growth in the GoI’s capital expenditures jumped from 10.3% in Q2 FY2025 to a six-quarter high of 47.7%.
According to ICRA, the YoY growth in the services GVA is anticipated to increase from 7.1 percent in Q2FY25 to 7.7 percent in Q3.
Additionally, the YoY growth rate of India’s service exports increased from 12.2% in Q2 FY2025 to 17.5% in Q3 FY2025. In December 2024, service exports reached a record high of $36.9 billion. Additionally, merchandise exports saw a turnaround, increasing 3.3% year over year in Q3 FY2025 after contracting 4.3% in Q2 FY2025.
Additionally, it is anticipated that the GVA growth of fishery, forestry, and agriculture will increase from 3.5% in Q2 FY2025 (+1.7%) to 4.0 percent in Q3 FY2025 (+0.4%), a seven-quarter high. ICRA concluded that a subdued base and a strong growth in kharif foodgrain output would support this.
