India’s Economy Rebounds To 6.3% Growth; Driven By Government Spending

According to a Reuters poll of economists, India’s economy likely expanded by 6.3% in the last quarter, rebounding from a slowdown, as higher government expenditure helped counter weak household demand.

However, growth will likely remain modest in the near term.

Last year’s national elections led to a temporary pullback in infrastructure spending, a major driver of economic growth.

This contributed to a slowdown, with GDP growth falling to 5.4% in the July-September quarter – well below the 8.2% average recorded in the previous fiscal year.

The period also saw foreign investors pulling billions from Indian equities.

Government Spending & Economic Recovery

However, government spending likely saw double-digit growth in the last three months of 2024, indicating that the economic recovery is more reliant on policy measures than broad-based expansion.

This has raised concerns about whether growth can be sustained without continued government support.

Despite the festive season from October to December, household consumption remained sluggish.

GDP for the October-December quarter was likely to have grown 6.3% annually, up from the near two-year low of 5.4% in the previous quarter.

A Reuters poll of 53 economists, conducted from 17-24 February, estimated economic activity, measured by gross value added (GVA), at 6.2%.

Future Growth Prospects

Forecasts for the GDP data, set for release on 28 February, ranged from 5.8% to 7.4%.

Dhiraj Nim, an economist at ANZ stated, “The key reason is the uptick in public spending, which is well known. I don’t think consumption has yet become a strong driver of growth. Inequality is now worse, which is weighing on overall consumption dynamics and limiting the potential for strong consumption growth year after year.”

He noted that wealth concentration in India’s top 1% is at its highest in six decades, as per the World Inequality Lab.

On whether India’s GDP could return to 8% growth, Nim emphasized, “You require far bigger reforms in agricultural and labour markets. But the question is, are those reforms happening right now? Possibly not.”

According to the poll, GDP growth will likely stay between 6.3% and 6.7% through the April-June quarter of 2026 – short of the 8% economists believe is necessary for stronger job creation and widespread economic benefits.

Forecasts predict the economy will expand by 6.5% over the next two fiscal years.

Economists also pointed out that the government’s approach of using corporate tax cuts and infrastructure spending to spur private investment has yet to translate into significant job growth or higher household incomes.

Aditya Vyas, chief economist at STCI Primary Dealer, noted that the recent corporate tax cuts had little impact on private investment as businesses remain uncertain about future demand.

“So, until we fix all these issues, we will not see the growth we saw a few quarters ago. Also, the focus should not be on the rate at which we are growing but on what is driving it and how many jobs we are creating,” he said.

Also Read: India’s Wind Power Expansion Set To Double In Two Years: Report