Amid trade-related uncertainty stemming from US tariffs and broader macroeconomic challenges, India’s GDP is expected to rise to 6.9 per cent on-year in Q4FY25 from 6.2 per cent in Q3FY25, ICRA stated in a report. The projection is significantly undershooting the National Statistical Office’s (NSO) implicit estimate of 7.6 per cent for the quarter.
The growth in Gross Value Added (GVA) is expected to see only a modest uptick, at 6.3 per cent in Q4 versus 6.2% in Q3, led by a slight improvement in industrial activity and steady trends in services and agriculture. GVA in the industrial sector is seen rising to 4.8 per cent from 4.5 per cent, while services are projected to grow 7.5 per cent (up from 7.4 per cent), and agriculture to moderate slightly to 5.5 per cent (from 5.6 per cent).
Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA, said, “In a quarter characterised by enhanced uncertainty on the global front, ICRA estimates India’s GDP growth to have risen to 6.9 per cent in Q4FY25 from 6.2 per cent in Q3FY25. Both private consumption and trends for investment activity were uneven in Q4FY25, with the latter partly owing to tariff-related uncertainty.”
While services sector exports continued to show double-digit growth, merchandise exports contracted in YoY terms in Q4FY25 after expanding in Q3. Aditi Nayar added, “While the robust increase in the output of most rabi crops is likely to have boosted the agri-GVA growth in Q4FY25, the tepid pace of expansion in the industrial volume growth as well as the deterioration in the performance of several service-sector indicators is expected to have weighed on the GVA growth of these segments.”
Full-year growth to decelerate sharply
In the event of nom material revisions in the data for Q1-Q3 FY25, ICRA said, a sharp step down is expected in the full-year GDP and GVA expansion to 6.3 per cent and 6.2 per cent respectively in FY2025 from 9.2 per cent and 8.6 per cent respectively in FY2024. This, ICRA added, will be driven by industry (to +5.3 per cent from +10.8 per cent) and services (to +7.2 per cent from +9.0 per cent). This is also lower than the NSO’s Second Advance Estimate of 6.5 per cent for GDP and 6.4 per cent for GVA for FY2025.
GDP-GVA wedge turns positive
According to the ICRA report, the gap between GDP and GVA growth is expected to turn positive again in the fourth quarter of FY25 after staying negative for three quarters. Based on the available data for the Centre’s indirect taxes and subsidies, ICRA estimated that the growth in net indirect taxes (in nominal terms) rose quite sharply in the quarter from 6.8 per cent in Q3FY25, aided by a sharp contraction in the Centre’s subsidy disbursement. This implies that the GDP growth is set to witness a faster improvement in Q4 relative to that seen in the GVA growth.
ICRA further added that the growth in industrial GVA is expected to improve to 4.8 per cent in Q4FY25 from 4.5 per cent in Q3FY25, led by construction, electricity, and mining and quarrying, amid a flattish performance of manufacturing.
Investment witnesses mixed signals
Furthermore, ICRA maintained that in the backdrop of trade-related uncertainty triggered by the US tariffs, India’s investment activity showcased a mixed trend in Q4FY25. “The YoY performance of only six of the 11 investment-related high frequency indicators improved in Q4 over Q3, mostly pertaining to the construction sector, including infrastructure/construction goods’ output, cement production, and finished steel consumption,” it said while adding that state-investor meets in Madhya Pradesh, Kerala, Karnataka, and West Bengal pushed up project announcements to record levels of Rs 19.2 trillion in Q4.
However, project completions stayed weak in Q4 at Rs 1.6 trillion, which is about 59 per cent lower than the same period last year. If the government’s capital spending in Q4 matched the revised estimate for FY25, it would mean a solid year-on-year growth of around 21 per cent—though that’s still slower than the 48 per cent growth seen in Q3, the report maintained.
Services and agriculture: Moderating indicators
ICRA estimated the YoY growth in the services GVA to rise marginally to 7.5 per cent in Q4FY25 from 7.4 per cent in Q3FY25. The YoY performance of nine of the 13 high frequency indicators pertaining to the services sector moderated in Q4 vis-à-vis Q3 and these include services exports, outstanding CP volumes, diesel, petrol, and ATF sales, air cargo traffic, telephone subscribers and the non-interest revenue expenditure (in January-February FY25) of the Government of India (GoI) and 26 state governments (data for Jan-Feb 2025 is not yet available for Bihar and Goa).
Even as the pace of YoY expansion of services exports slowed to 14.1 per cent in Q4FY25 from 17.9 per cent in Q3FY25, ICRA said, it continued to print in double digits for the third consecutive quarter. It is worth noting here that services exports stood at $102.0 billion in Q4FY25, the highest level seen in the Q4 of any fiscal year.
Based on the Second Advance Estimates of rabi output for 2024-25, the GVA growth of agriculture, forestry and fishing is estimated at a healthy 5.5 per cent in Q4FY25, similar to 5.6 per cent seen in Q3FY25, albeit lower than the NSO’s implicit growth estimate of 6.2 per cent for the quarter.
A positive consumer sentiment
“Rural sentiments, as reflected in the Current Situation Index (CSI) improved somewhat in January 2025 (98.0) round of the RBI’s Rural Consumer Confidence Survey (launched in April 2025), and re-entered positive territory in March 2025 (100.1), likely aided by cash flows from the kharif harvest and favourable trends in rabi sowing and output,” ICRA said. Interestingly, the March 2025 round of the RBI’s Urban Consumer Confidence Survey, which is conducted in 19 major cities, revealed that urban consumer sentiments improved further, with the CSI rising to 95.5 from 93.7 in January 2025, while remaining in the negative territory.