India’s GDP growth forecasted at 6.9% in Q4FY25 with expected overall economic slowdown, according to ICRA; robust Rabi harvest and weak services contribute

According to a report by ICRA, India’s GDP is projected to increase to 6.9 percent year-on-year in the fourth quarter of FY25, up from 6.2 percent in the third quarter. This estimate notably falls short of the National Statistical Office’s (NSO) implicit forecast of 7.6 percent for the same period.

Growth in Gross Value Added (GVA) is anticipated to show a modest rise, reaching 6.3 percent in Q4 compared to 6.2 percent in Q3, primarily driven by slight improvements in industrial performance as well as stable outputs in services and agriculture. In the industrial sector, GVA is projected to grow to 4.8 percent, up from 4.5 percent, while service sector growth is expected to increase to 7.5 percent (from 7.4 percent). Conversely, agricultural growth may see a slight decline to 5.5 percent from 5.6 percent.

Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA, stated, “In a quarter marked by increased global uncertainties, ICRA estimates an uplift in India’s GDP growth to 6.9 percent in Q4FY25 from 6.2 percent in Q3FY25. Both private consumption and investment activity exhibited inconsistencies in Q4, with the latter influenced by tariff-related uncertainties.” Despite service sector exports maintaining double-digit growth, merchandise exports faced a year-on-year contraction in Q4 after a rise in Q3.

Nayar further noted, “The substantial growth in the output of most rabi crops likely bolstered agricultural GVA growth in Q4FY25; however, the sluggish industrial volume growth coupled with declines in various service sector performance indicators are expected to hinder GVA growth in these areas.”

Full-year growth to sharply decelerate

ICRA predicts that barring any significant data revisions for Q1-Q3 FY25, a drastic decline in full-year GDP and GVA expansion is expected, decreasing to 6.3 percent and 6.2 percent respectively in FY2025, down from 9.2 percent and 8.6 percent in FY2024. This downturn will largely result from reduced growth in industry (from +10.8 percent to +5.3 percent) and services (from +9.0 percent to +7.2 percent). This forecast is also lower than the NSO’s Second Advance Estimate of 6.5 percent for GDP and 6.4 percent for GVA for FY2025.

GDP-GVA gap turns positive

The ICRA report indicates that the gap between GDP and GVA growth is expected to become positive again in Q4FY25 after being negative for three consecutive quarters. Based on the available data concerning the Centre’s indirect taxes and subsidies, ICRA observed a substantial increase in net indirect taxes growth (in nominal terms), which rose sharply in the quarter from 6.8 percent in Q3FY25, largely due to a notable drop in the Centre’s subsidy expenditures. This suggests that GDP growth will experience a more rapid enhancement in Q4 compared to GVA growth.

Moreover, ICRA indicated that industrial GVA is anticipated to grow to 4.8 percent in Q4FY25 from 4.5 percent in Q3FY25, supported by growth in construction, electricity, and mining and quarrying, while manufacturing performance remained fairly stable.

Investment exhibits mixed trends

ICRA also highlighted that amid trade-related uncertainties stemming from US tariffs, India’s investment activities presented a mixed bag in Q4FY25. “The year-on-year performance of only six out of 11 investment-related high frequency indicators improved in Q4 compared to Q3, primarily centered around the construction sector, including outputs for construction goods, cement production, and finished steel consumption,” it reported. Additionally, state-investor meetings in Madhya Pradesh, Kerala, Karnataka, and West Bengal led to record project announcements totalling ₹19.2 trillion in Q4. However, project completions lagged at ₹1.6 trillion, approximately 59 percent lower than the previous year.

Should the government’s capital spending in Q4 align with the revised estimate for FY25, it would signify an impressive year-on-year increase of around 21 percent, although still less than the 48 percent surge noted in Q3.

Moderating indicators in services and agriculture

ICRA estimated that GVA growth in services is expected to slightly increase to 7.5 percent in Q4FY25 from 7.4 percent in Q3FY25. However, the year-on-year performance of nine out of 13 high frequency indicators linked to the services sector showed moderation in Q4 when compared to Q3. These include services exports, outstanding commercial paper volumes, fuel sales (diesel, petrol, jet fuel), air cargo traffic, and non-interest revenue expenditure by the Government of India and 26 state governments (data for January-February 2025 is yet to be released for Bihar and Goa).

Despite a dip, the rate of year-on-year growth in services exports slowed to 14.1 percent in Q4FY25 from 17.9 percent in Q3FY25, maintaining double-digit growth for the third consecutive quarter. Notably, services exports reached $102.0 billion in Q4FY25, marking the highest level recorded in any fiscal year’s Q4.

According to the Second Advance Estimates of rabi output for 2024-25, agricultural, forestry, and fishing GVA growth is projected to be a robust 5.5 percent in Q4FY25, similar to the 5.6 percent reported in Q3FY25 but lower than the NSO’s implied growth estimate of 6.2 percent for the quarter.

A positive shift in consumer sentiment

ICRA noted that rural sentiments experienced a slight improvement in January 2025, as reflected in the Current Situation Index (CSI) of the RBI’s Rural Consumer Confidence Survey (launched in April 2025), re-entering positive territory in March 2025 with a CSI of 100.1, likely supported by cash flow from the kharif harvest and favorable rabi sowing conditions.

Interestingly, the March 2025 round of the RBI’s Urban Consumer Confidence Survey, conducted across 19 major cities, indicated a further improvement in urban consumer sentiments, with the CSI elevating to 95.5 from 93.7 in January 2025, albeit still within the negative spectrum.