India’s Q4 GDP Growth Set To Accelerate As Economic Indicators Improve

According to a Bank of Baroda report released on Wednesday, India’s GDP growth will likely gain momentum in the January-March quarter of FY25, supported by key economic indicators.

Among the positive trends, GST collections averaged Rs 3.8 lakh crore in January-February 2025, up from Rs 3.4 lakh crore in the same period last year.

E-way bill generation also saw a sharp rise to 23.1% in January 2025, compared to 16.4% in January 2024 and 16.9% in Q3FY25.

Toll collections recorded a 16.7% increase in the first two months of 2025, higher than the 11.2% growth in the previous year and 14% in Q3FY25.

However, air passenger traffic and vehicle registrations showed signs of slowing during this period.

Despite this, GDP growth in Q4 FY25 is expected to rise. Higher consumption will be a key driver, supported in part by the Kumbh Mela. The event has positively impacted the services and FMCG sectors.

For the full year, the economy is likely to expand by 6.5%, with agriculture emerging as a strong performer.

The sector registered a 5.6% growth in Q3, significantly higher than the 1.5% increase in the same quarter last year.

Inflation, RBI Policy, & GDP Growth Impact

The report also anticipates further rate cuts by the RBI, as inflationary pressures have eased.

The central bank recently reduced the repo rate by 25 basis points to 6.25%, maintaining a neutral stance.

RBI Governor Shaktikanta Das highlighted the need for a ‘less restrictive’ monetary policy to support economic expansion.

Growth is projected to rise to 6.7% in FY26 from 6.4% in FY25, with inflation expected to moderate to 4.2% in FY26 from 4.8% in FY25.

CPI inflation is likely to remain around 4.4% in Q4FY25 and 4.5% in Q1FY26.

These forecasts also factor in rupee fluctuations. With inflationary pressures anticipated to decline substantially, the RBI may have more flexibility to reduce rates further.

“We expect up to 75bps (cumulative) reduction in rates in this calendar year. At the time of next rate cut, we also expect a change in stance,” the report noted.

India’s 10-year bond yield softened due to RBI’s liquidity management measures, including the VRR auction.

Moving forward, the yield will likely trade in the 6.65%-6.75% range in March 2025, though tightening liquidity due to tax outflows could pose an upside risk.

“On policy rate, we anticipate RBI will wait and watch before taking any action in April’25 given the moderation in headline inflation,” the report asserted.

The report also notes that stable oil prices, a recovering domestic economy, and strong external buffers are favorable for the rupee.

However, ongoing volatility in global financial markets could limit its appreciation. US trade policies and dollar movements will play a key role in determining the rupee’s trajectory.

The report forecasts, “We expect a range of 86.75-87.75/$ (and could also touch Rs 88/$ before reverting to this range) in the coming month.”

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