Explore how strong performances across key sectors are setting the stage for India’s economic resilience
The Indian economy is poised for a significant upswing in the third quarter of FY2025 (October–December 2024). According to a recent report by ICRA, the country’s economy is expected to grow at a faster pace compared to the first half of the fiscal year, driven by strong performance across multiple sectors and improving economic indicators. Preliminary data for November 2024 further reinforces this optimism, painting a positive outlook for India’s GDP growth.
Sectoral Growth Driving Economic Expansion
Electricity Demand
Electricity demand has witnessed a noticeable pick-up during Q3 FY2025, supported by a favorable base effect and a rise in industrial and residential consumption. This surge is indicative of robust activity levels across industries and heightened domestic demand, both of which are key drivers of economic growth.
Festive Season Boost
The festive season played a critical role in boosting demand during this quarter. Consumer spending saw a sharp rise, particularly in the automotive and retail sectors. Vehicle registrations surged by 32.4% year-on-year in October 2024, marking a stark improvement from the 8.7% contraction in September 2024. This sharp recovery highlights the strength of India’s domestic demand and its role in propelling economic activity.
Improvement in Mobility and Transportation Indicators
The report emphasizes the remarkable recovery in mobility and transportation-related indicators during Q3 FY2025:
Vehicle Registrations:
The 32.4% year-on-year increase in October 2024 reflects heightened consumer confidence and strong demand for two-wheelers and passenger vehicles. This growth was further fueled by festive season offers and improved rural demand.
Petrol and Diesel Consumption:
Petrol consumption rose to 8.7% in October from 3.0% in September 2024.
Diesel consumption recorded marginal growth of 0.1% in October, recovering from a 1.9% contraction in September.
These trends indicate increased vehicular activity and heightened industrial operations, suggesting a broader recovery in economic activity.
Air Passenger Traffic:
Domestic air passenger traffic grew by 9.6% in October 2024, up from 6.4% in September. This rise signals a resurgence in consumer mobility and confidence, aided by the festive travel season and easing restrictions on air travel.
Rail Freight:
Rail freight volumes improved significantly, recording 1.5% growth in October 2024 after a decline of 0.7% in September. This recovery underscores the growing demand for goods transportation and industrial activity.
Two-Wheeler Production:
Two-wheeler production surged by 13.4% in October 2024, highlighting robust demand in the domestic and export markets.
Strong Non-Oil Export Performance
India’s non-oil exports recorded stellar growth in Q3 FY2025, posting a 25.6% year-on-year increase in October 2024 compared to 6.8% in September. This robust performance was driven by the strong export demand for key sectors such as:
Electronic Goods: High global demand and India’s increasing competitiveness in electronics manufacturing contributed to this growth.
Engineering Goods: Innovations and improved quality standards have enhanced India’s standing as a global exporter.
Chemicals and Pharmaceuticals: These sectors continued to perform well, benefiting from sustained demand across international markets.
Readymade Garments: The festive season in key export markets bolstered demand for Indian textiles and apparel.
The export surge reflects India’s growing integration with global value chains and its ability to tap into international demand, even amid challenging global economic conditions.
ICRA Business Activity Monitor: A Strong Signal
ICRA’s Business Activity Monitor, a composite indicator of economic activity, highlighted an impressive year-on-year growth of 10.1% in October 2024. This is the highest growth recorded in eight months and marks a substantial improvement from the 6.6% growth observed in September 2024.
Despite challenges posed by a high base effect, the robust performance in October signals the resilience of India’s economy. The Monitor captures trends across various sectors, including manufacturing, services, and infrastructure, offering a comprehensive picture of the country’s economic health.
Economic Indicators Reflecting Resilience
Manufacturing and Industrial Activity
The manufacturing sector has shown strong momentum in Q3 FY2025, supported by favorable policies and increased capacity utilization. Rising domestic demand and robust export performance have further boosted industrial output.
Consumer Sentiment and Spending
Consumer sentiment remained upbeat during the festive season, driving higher spending across categories. This trend reflects the positive impact of higher disposable incomes, easing inflation, and improved rural demand.
Agriculture and Rural Economy
The rural economy has benefited from a good monsoon season, which has led to higher agricultural output and improved rural incomes. This has translated into increased consumption of goods such as two-wheelers, fertilizers, and agricultural machinery.
Key Challenges and Opportunities
Challenges
Global Economic Uncertainty: Slowdowns in major economies could impact export demand in the coming months.
High Base Effect: The strong performance in Q3 FY2025 is partly due to favorable base effects, which may taper off in subsequent quarters.
Inflationary Pressures: While inflation has eased, continued vigilance is required to manage its impact on purchasing power and business costs.
Opportunities
Festive Demand Spillover: Continued spending momentum from the festive season can sustain growth into the next quarter.
Policy Support: Government initiatives such as the Production Linked Incentive (PLI) schemes are expected to bolster manufacturing and exports further.
Digital and Infrastructure Investments: Rising investments in digital technologies and infrastructure development will act as long-term growth drivers.
Outlook for Q3 FY2025 and Beyond
The upbeat trends across key economic indicators and sectors point to a stronger GDP growth rate for Q3 FY2025 compared to H1 FY2025. The robust recovery in transportation, exports, and industrial activity underscores India’s economic resilience.
As per ICRA, these trends reinforce expectations of a steady recovery, with the potential for sustained growth into the fourth quarter of FY2025. The focus on infrastructure development, rising consumer confidence, and global demand for Indian goods will likely remain key growth drivers.
Conclusion
India’s economy is on a promising growth trajectory in Q3 FY2025, driven by robust performance across sectors such as mobility, exports, and manufacturing. The positive trends in electricity demand, transportation, and consumer spending reflect the resilience and adaptability of the Indian economy.
While challenges such as global uncertainty and inflation persist, the outlook remains optimistic, supported by strong policy measures and improving domestic and international demand. The third quarter of FY2025 is set to reinforce India’s position as one of the fastest-growing major economies in the world, paving the way for sustained economic momentum in the years ahead.
