Economy back on growth path, says govt data; Kumbh may have contributed

India’s economy appears to be back on the growth path, with the government’s second advance estimates pegging GDP growth in the third quarter (October-December 2024-25) at 6.2 per cent, a far cry from the 5.6 per cent in the immediately previous quarter.

Data released by the National Statistics Office (NSO) show that per capita private final consumption expenditure (PFCE), which comprises nearly 60 per cent of the GDP, grew by 6.6 per cent at 2011-2012 prices. Per capita final consumption expenditure was at Rs 75,723 as per the second revised estimates versus Rs 71,016 in the first revised estimates for FY24.

This means consumers had more money in their hands for discretionary spending, which includes buying soaps, shampoo, cars and mobile phones and expenditure on taking vacations, eating out etc.

Industry data says otherwise

The chief economist at CareEdge Ratings, Rajani Sinha, said the GDP rebound in Q3 “was largely anticipated, as indicated by several high-frequency macroeconomic indicators including improved GST collections, public spending, electricity generation and export performance”.

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But the government data on increasing consumption expenditure contradicts the commentary seen recently from India’s top consumer firms, dealing in fast moving consumer goods, cars and two wheelers. The general refrain from these companies has been about a slowdown in discretionary spends in the urban pockets even as rural spending has been on the rise due to increased farm incomes.

Sinha concurred with this commentary, saying high-frequency indicators continue to present a mixed picture for urban demand even as improved agricultural activities and falling inflation have fuelled rural consumption demand.

Q4 key and growth target

Overall, the NSO data also show that for 12 months of the current fiscal year (ending on March 31), GDP growth rate would come in at 6.5 per cent, marginally higher than the 6.4 per cent estimate given just last month in the first advance estimates. In any case, the 6.5 per cent forecast for GDP growth in FY25 is still significantly lower than the 9.2 per cent print seen in FY24 and shows the extent of economic slowdown. But if the Indian economy is to grow at the new target of 6.2 per cent for FY25, the GDP growth for the current quarter (January-March) must come at 7.6 per cent. Is that a realistic target?

Chief Economic Advisor V Anantha Nageswaran has been quoted as saying that consumer spending by crores of devotees who travelled for the Maha Kumbh this quarter could be one of the contributors to the expected upsurge in economic growth, besides government capex and some other macro indicators improving demand.

Sinha of CareEdge Ratings also underlined “festivities amidst Maha Kumbh celebrations in Q4” to say that this should also support consumption demand and sectors such as trade, hotel and transport.

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State capital expenditure

But some economists have pointed towards rising capital expenditure by state governments, especially in the second half of the fiscal year, as the primary reason for the economic cheer.

On the consumption mystery, DK Srivastava, chief policy advisor at EY India, told The Federal that the growth in PFCE has not just come from the rural pockets but also urban buyers in the December quarter. “Yes, there are some issues with urban employment which has led to a fall in urban demand but I think that probably the deficiency in urban demand has been overstated. This uptrend of PFCE will continue in the coming quarters, particularly because of the recently announced income tax concessions and consumption will remain strong. But will it be the mainstay of GDP growth? This is not clear because growth could largely depend on capital expenditure (capex).”

Anshuman Magazine, chairman and CEO, India, Southeast Asia, Middle East and Africa, CBRE, spoke of a strengthened rural economy fuelling resurgence. “India’s robust economic trajectory reflects a resurgence fuelled by a strengthened rural economy, controlled inflationary pressures and strategic capital expenditure. The anticipated full-year growth projection of 6.5 per cent, driven by sustained domestic demand and positive industrial trends, reinforces India’s position as a stable and dynamic economy amidst global uncertainties,” he said.

Government capex

Srivastava said that state governments have “largely come on board with effective capex” because the Centre has been trying to stimulate capital expenditure by states. This is being done through large grants to state governments which have been earmarked for exclusive use in infrastructure expansion and also by giving a window to state governments of 50 years for interest free borrowings of up to Rs 1.5 lakh crore, he said.

And what about private sector capex? Sinha said that private capex will rise in tandem with increased discretionary spending by consumers and overall increase in demand.