India's Economy Rebounds: Q3 Growth at 6.2%, FY25 Forecast Revised to 6.5%

February 28, 2025 – India’s economy grew by 6.2% in the third quarter (October-December) of the financial year 2024-25, according to data released today by the National Statistics Office (NSO). This marks a recovery from the 5.4% growth in the prior quarter (July-September), which had been the slowest in nearly two years. The uptick aligns with expectations from economists surveyed by Bloomberg and Reuters, who forecasted a median growth of 6.2% to 6.3%, driven by robust government spending and a resurgence in rural demand.

The NSO data shows that the growth was propelled by several key sectors. Agriculture saw a notable improvement, buoyed by favorable monsoon conditions and increased rabi crop sowing, contributing to stronger rural consumption. Government expenditure also played a pivotal role, with significant capital spending—61.7% of the budgeted amount utilized in the first nine months compared to 37.7% until September—fueling infrastructure projects like roads, ports, and highways. This amounted to Rs 2.7 lakh crore in Q3 alone, boosting construction activity, which grew at 8.6%. Industrial output also picked up, with manufacturing growth improving from 3.3% in Q2 to 4.3% in Q3, though it remains modest compared to last year’s 11.5% in the same quarter.

On the demand side, private final consumption expenditure rose by 7.6%, reflecting a festive season boost, particularly in rural areas following a good harvest. Government final consumption expenditure increased by 8.3%, reinforcing economic activity. The services sector, including trade, hotels, transport, and communications, grew by 6.4%, while financial, real estate, and professional services expanded by 7.2%. However, export growth faces headwinds, with potential U.S. tariffs under the incoming Trump administration threatening to dampen momentum. Goldman Sachs estimates these could trim 0.1 to 0.6 percentage points off GDP growth.

The government revised its full-year FY25 growth projection to 6.5%, up from 6.4%, citing strong export performance, public sector investment, and events like the Maha Kumbh, which is expected to spur spending on food, travel, and accommodation. Chief Economic Adviser V. Anantha Nageswaran emphasized that this growth rate positions India favorably among global economies, projecting optimism for FY26. Still, challenges linger: urban demand remains weak, and the 6.2% growth falls short of the 8.6% recorded in Q3 FY24 and the Reserve Bank of India’s earlier 6.8% forecast for the quarter.

Analysts note that while the recovery is encouraging, it’s heavily reliant on government intervention rather than broad-based private consumption or investment. The International Monetary Fund projects India’s growth at 6.5% for both FY25 and FY26, supported by domestic demand and infrastructure, but global uncertainties could test this resilience.