India GDP growth likely picked up in Q4 on strong rural spending: Poll

Business Standard

26-05-2025

Indian economic growth likely picked up last quarter, a Reuters poll of economists found, in part from strength in rural spending related to better agricultural output even as urban spending likely remained more subdued.
Gross domestic product (GDP) in Asia's third-largest economy likely grew 6.7 per cent year-on-year in the January-March period up from 6.2 per cent the previous quarter, according to the median forecast from a May 19-23 Reuters poll of 56 economists. Forecasts ranged from 5.8 per cent to 7.5 per cent.
"If you look at the real growth momentum ... we are seeing some signs of a pickup on the rural side, by the fact that crop output is better, followed by moderation in inflation pressures," said Gaura Sengupta, chief economist at IDFC First Bank.
Economists at Citi wrote "resilient (agricultural) activity continues to bode well for rural consumption," adding that they "remain bearish on urban consumption" in the first half of the current fiscal year, with a recovery driven by policy stimulus.
The Reserve Bank of India is expected to cut interest rates for a third consecutive meeting in June.
But Standard Chartered's head of India economic research, Anubhuti Sahay, said any growth improvement was mainly driven by the positive impact of net indirect taxes as subsidy payments were significantly lower during the period.
Economic activity as measured by gross value added (GVA), considered a more stable gauge of growth and excludes indirect taxes and subsidies, expanded a modest 6.4 per cent in the first three months of 2025 compared to 6.2 per cent the previous quarter.
Without stronger domestic demand, GDP growth will continue to rely heavily on government spending, as it has for years.
"The recovery is possibly more in numbers than in real improvement in activity. Weak investment prospects, exacerbated by struggling manufacturing suggest a growth recovery is multiple quarters away," said Kunal Kundu, India economist at Societe Generale.
"There was some sense of improvement in rural demand but real wages are still not showing signs of meaningfully moving up. Rural demand is ... not strong enough to be an important growth driver on its own as it's just showing some signs of moving up from a weak base, while urban demand continues to be weak."
Economists also cautioned that erratic US trade policy since the start of the year presents a shaky backdrop for future growth prospects.
A separate Reuters poll taken last month found US tariffs had negatively hit business sentiment, which bodes poorly for a long-expected pickup in corporate spending.
"Private investments ... whatever interest rate cuts you do, I don't think will move significantly higher simply because private investments will be determined more by a relatively certain atmosphere," said Indranil Pan, chief economist at Yes Bank.
"It's ultimately the outlook from the demand and overall sentiment ... that can help, which currently is unfortunately not getting any help because of the uncertainty that is there in the global system."