By India’s economy experienced a notable uptick in the January–March quarter of fiscal year 2024–25, with GDP growth estimated at 6.7% year-on-year, up from 6.2% in the previous quarter. This acceleration is attributed to robust rural consumption fueled by improved agricultural output and a significant increase in net indirect tax collections .
Rural Consumption Drives Growth
Economists highlight the resurgence in rural demand as a key factor in the GDP boost. Gaura Sengupta, Chief Economist at IDFC First Bank, noted, “We are seeing signs of a pickup on the rural side, by the fact that crop output is better, followed by moderation in inflation pressures” . The agricultural sector’s resilience has bolstered rural incomes, leading to increased spending in these areas.
Urban Consumption Remains Subdued
In contrast, urban consumption continues to lag. Economists at Citi observed that while agricultural activity supports rural consumption, they “remain bearish on urban consumption” in the first half of the current fiscal year, anticipating recovery driven by policy stimulus .
Gross Value Added (GVA) Shows Modest Improvement
Gross Value Added (GVA), a measure that excludes indirect taxes and subsidies, expanded by 6.4% in Q4, a slight increase from 6.2% in the previous quarter. This modest improvement suggests that while certain sectors are recovering, others, like manufacturing, still face challenges .
Government Spending and Tax Collections Bolster Growth
The surge in net indirect tax collections has played a significant role in the GDP growth. Barclays projects a 7.2% growth rate for the Indian economy in Q4, driven primarily by this tax surge and improvements in the agriculture sector . The increased tax revenues indicate stronger government earnings, possibly from higher consumption and industrial activity.
Outlook and Challenges Ahead
Despite the positive momentum, economists caution that without stronger domestic demand, GDP growth will continue to rely heavily on government spending. Kunal Kundu, India economist at Societe Generale, remarked, “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” .
Additionally, erratic US trade policies present uncertainties for future growth prospects. A separate Reuters poll found that US tariffs have negatively impacted business sentiment, which could hinder the anticipated pickup in corporate spending .
India’s Q4 GDP growth
India’s Q4 GDP growth reflects a complex interplay of factors. While rural consumption and government initiatives have provided a boost, challenges in urban demand and global trade dynamics pose risks to sustained growth. Policymakers and stakeholders will need to navigate these challenges carefully to maintain and enhance economic momentum in the coming quarters.
