In the third quarter of the fiscal year 2024-25 (October to December 2024), India’s Gross Domestic Product (GDP) experienced a growth of 6.2%, an improvement from the 5.6% growth observed in the previous quarter. This growth, though slightly below the anticipated 6.3%, reflects a resilient economy bolstered by various factors.
Key Drivers of Growth
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Robust Rural Demand: A favorable monsoon season led to substantial Kharif crop yields, enhancing rural income and consumption. Agricultural output rose by 5.6% year-on-year, contributing significantly to the GDP.
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Increased Government Expenditure: Government spending surged by 8.3%, focusing on infrastructure projects and public services. This fiscal stimulus played a crucial role in driving economic activity and employment.
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Consumer Spending: Private consumption grew by 6.9% year-on-year, spurred by improved rural demand and festive season purchases. This uptick indicates renewed consumer confidence and purchasing power.
Sectoral Performance
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Agriculture: The agricultural sector witnessed a robust growth of 5.6%, attributed to favorable weather conditions and increased crop production. This growth not only boosted rural incomes but also ensured food security.
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Manufacturing: The manufacturing sector’s growth remained subdued during this quarter. Factors such as global supply chain disruptions and cautious private investment contributed to this tepid performance.
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Services: The services sector continued its upward trajectory, driven by IT services, financial sectors, and real estate. The digital transformation and increased demand for online services have been pivotal in this growth.
Monetary Policy and Inflation
In response to the current economic landscape, the Reserve Bank of India (RBI) implemented a rate cut in February 2025, the first in nearly five years. This monetary easing aims to support growth amid global uncertainties. Inflation rates have moderated to 4.3% in January 2025, providing the central bank with the flexibility to adjust rates without stoking inflationary pressures.
External Factors and Trade
Despite being the fastest-growing major economy, India’s growth had been slowing for three consecutive quarters due to weak corporate investment and reduced urban consumption. Economists believe maintaining around 8% GDP growth is essential for India to achieve Prime Minister Narendra Modi’s goal of becoming a developed nation by 2047. The government’s recent measures include tax breaks for the middle-class and an increase in growth for government spending. Additionally, the Reserve Bank of India reduced the benchmark repo rate to support growth. However, net foreign investment has dropped significantly, and the rupee is under pressure due to external economic risks. Modi’s recent visit to Washington aimed to strengthen US-India ties and address trade barriers.
Future Outlook
The government has revised its full-year GDP growth forecast slightly upwards to 6.5% for the fiscal year 2024-25. This optimism is grounded in expectations of sustained rural demand, continued government expenditure, and a recovering global economy. However, challenges persist, including the need for revitalization in the manufacturing sector and navigating global trade uncertainties.
Conclusion
India’s 6.2% GDP growth in Q3 2024-25 underscores the economy’s resilience amidst global and domestic challenges. The combined impact of strong rural demand, proactive government spending, and supportive monetary policies has been instrumental in this performance. Moving forward, addressing sector-specific challenges and fostering a conducive environment for investment will be key to sustaining and enhancing economic growth.
