India GDP Preview: Economic Activity To See Uptick In Q4; GVA Gap To Widen

Indian economic growth is likely to continue to see a pick-up in the January-March quarter.

The gross domestic product is estimated to grow by 6.8% in the January–March period, according to economists polled by Bloomberg. That's higher than 6.2% in the October-December quarter. Gross value added is expected to expand to 6.4%, compared to 6.2% in the previous quarter.

For the full year, GDP is estimated to grow by 6.3%, according to economists polled by Bloomberg. This is compared to the second advance estimate of 6.5% and will be the slowest pace of growth in four years.

"Given the muted improvement in economic activity, we expect real GVA growth to rise only slightly, to 6.4% year-on-year, in Q4 FY24-25," said Aastha Gudwani, chief economist at Barclays. "However, we expect a sharp rise in net indirect tax growth to drive real GDP growth to 7.2% year-on-year," she said, estimating FY25 real GVA and GDP growth at 6.2% and 6.4%, with upside risks.

Estimates of GDP in an India context are becoming increasingly challenging due to issues such as incomplete proxy data and sizable revisions, Gudwani said. She expects these complicating factors to make a comeback. "Given a sharp 30% year-on-year increase in net indirect taxes in the January-March quarter, we expect the gap between real GDP and GVA growth to widen again, reflecting different realities."

GDP growth in Q4 FY25 is estimated at 6% and lagging GVA growth is estimated at 6.2%, owing to muted growth in net indirect tax collections, according to estimates by Teresa John, economist at Nirmal Bang. "With Q4F25 GDP growth expected to remain sluggish, we have cut our FY25 GDP growth estimate to 6% vs 6.2% earlier, and GVA growth to 6.1% vs 6.2% earlier," she said.

Agriculture and allied sector growth is seen at 4% year-on-year in the fourth quarter, compared to 4.5% in the last quarter, supported by robust Kharif output and a low base, according to estimates by John.

Industry, excluding construction, is seen sluggish at 3% year-on-year in Q4, compared to 3.5% in Q3, she projected. Operating profitability, including employee costs, of BSE 500 companies excluding banks was marginally negative in Q4, while for BSE 500 including banks it stood at about 3.2%.

It may be noted that the data is not comprehensive as the earnings season is still in progress.

Manufacturing sector growth, as measured by the Index of Industrial Production, was also sluggish at 3.8% year-on-year during the January-March, John said, pegging manufacturing sector growth at 3%, mining at 2.1% and utilities at 4.1% year-on-year during the period.

Growth in services, including construction, was seen at 7.7% year-on-year in Q4 FY25, marginally up from 7.3% in the last quarter, led by an improvement in the construction sector, according to John's estimates.

While construction is expected at 10.5% year-on-year, trade, hotels, transport, and communication growth is expected at 7.5%. Traffic indicators largely saw improvement from the previous quarter, while petrol and diesel consumption moderated, she explained. Overall, motor vehicle sales moderated, while commercial vehicles sales improved marginally.

Financial, real estate, and professional services growth is seen at 6.7% YoY in Q4, against 7.2% in Q3, on the back of marginal moderation in credit and deposit growth and a slowdown in insurance and real estate sales, John said.

As for expenditure trends, consumption demand is expected to be supported by rural demand, while urban demand remains subdued, said Gaura Sengupta, chief economist at IDFC First Bank. The improvement in rural demand is aided by strong crop output and some improvement in rural wage growth, she said, adding that the lacklustre growth in urban demand reflects slowdown in urban wage growth.

Support to the capex cycle from government expenditure is expected to remain weak, based on fiscal data available for January and February, Sengupta, said. The decline in capital expenditure is seen at both Centre and state government level, she said.

Meanwhile, private corporate capex is expected to remain tentative, given uncertainties on both domestic and external demand outlook.