India’s economy is expected to strengthen in Q4FY25, fueled by increased government spending, higher capital expenditure, and a surge in consumption driven by major events like Maha-Kumbh and the wedding season. The Reserve Bank of India (RBI) has supported this growth trajectory through rate cuts and liquidity provisions, with the aim of achieving a projected 7.6% GDP growth for the quarter.
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India’s economy is set to witness a boost in the final quarter of FY25, driven by robust government spending, rising capital expenditure (Capex), and a significant increase in consumption, according to a report by Union Bank of India. The report highlights that key factors, such as the Maha-Kumbh and the wedding season, are expected to stimulate economic activity, while the Reserve Bank of India’s (RBI) supportive measures will further enhance growth prospects.
The RBI has played a pivotal role in bolstering economic growth through strategic rate cuts, liquidity provisions, and regulatory adjustments. These measures, including the reversal of macroprudential tightening, have been instrumental in maintaining financial stability and fostering credit expansion. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme for MSMEs is also expected to provide a substantial boost to credit growth, enabling small businesses to access necessary financial support.
India’s economy grew by 6.2% in Q3FY25, following a seven-quarter low of 5.6% (revised from 5.4%) in Q2FY25. However, signs of a recovery are evident, with projections indicating a 7.6% growth in Q4FY25. The report further revises the annual FY25 growth forecast from 6.4% to 6.5%, reaffirming expectations of an economic turnaround.
A key contributor to this revival is the Gross Value Added (GVA), which recorded a growth of 6.2% in Q3FY25, up from 5.8% in Q2FY25. This increase is attributed to the strong performance of the agriculture and industrial sectors, particularly in manufacturing, which saw heightened activity during the quarter.
Despite optimistic projections, the report cautions against potential risks that could hinder economic recovery. Ongoing global tariff wars and escalating geopolitical tensions remain significant concerns, as they could disrupt trade flows and investor confidence. Additionally, fluctuations in the stock market and weakened consumption in certain segments may pose challenges to sustained growth.
Despite these risks, India’s economic momentum is expected to remain resilient, driven by strong rural demand and a revival in urban consumption. Chief Economic Adviser Anantha Nageswaran emphasized that government-led fiscal spending and seasonal demand factors will continue to play a crucial role in sustaining economic activity in the coming months.
To further support growth, the RBI implemented a 25-basis-point interest rate cut in February 2025, aimed at stimulating investment and consumption. Additionally, the central bank has been actively managing liquidity through Open Market Operations (OMOs) and regulatory relaxations to promote credit growth, especially for MSMEs and non-banking financial companies (NBFCs).
With a combination of government-driven fiscal policies, increasing consumption demand, and the RBI’s accommodative monetary stance, India’s economy appears to be on track for a strong finish to FY25. While external risks persist, domestic factors are expected to drive growth and ensure economic stability in the months ahead.
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