Synopsis
India's GDP growth is set to increase in Q4 2025, driven by strong economic indicators including rising GST collections and a robust agriculture sector. The RBI is expected to lower rates to stimulate growth and contain inflation, with projections for overall growth at 6.5% for the year.Key Takeaways
- India's GDP growth expected to rise in Q4 2025.
- GST collections increased to Rs 3.8 lakh crore.
- RBI may cut rates further to boost growth.
- Full year growth projected at 6.5 percent.
- Inflation forecasted to decrease in FY26.
New Delhi, March 5 (NationPress) India's GDP growth is anticipated to increase in the Q4 (January-March) quarter of the ongoing financial year, according to a recent report from Bank of Baroda released on Wednesday. High-frequency economic indicators suggest a positive trend.
Key indicators signaling improvement in Q4 include a rise in GST collections, averaging Rs 3.8 lakh crore in January-February 2025, compared to Rs 3.4 lakh crore in the same period last year. Additionally, e-way bill generation has surged to 23.1 percent in January 2025, up from 16.4 percent in January 2024 and 16.9 percent in Q3FY25. Furthermore, toll collections have shown a growth of 16.7 percent in January-February 2025, compared to 11.2 percent a year earlier and 14 percent in Q3FY25.
The report indicates that although metrics like air passenger traffic and vehicle registrations have slowed in the January-February 2025 timeframe, there remains an upside potential for GDP growth in Q4FY25, bolstered by the Kumbh Mela's impact on consumption, services, and the FMCG sector.
For the entire fiscal year, growth is projected at 6.5 percent, driven by a strong performance in the agriculture sector, which recorded an impressive growth of 5.6 percent in Q3, compared to a mere 1.5 percent increase during the same quarter last year.
The report also anticipates that the RBI will continue to lower key rates to stimulate economic growth, as inflation trends downward.
It notes that the RBI’s monetary policy committee unanimously reduced the repo rate by 25 basis points, bringing it down to 6.25 percent from 6.5 percent. The committee maintained a neutral stance, with the RBI Governor emphasizing the necessity for a less restrictive monetary policy to foster growth, as inflation remains within the targeted band. The central bank expects growth to rise to 6.7 percent in FY26, up from 6.4 percent in FY25, with inflation projected to decrease to 4.2 percent in FY26 from 4.8 percent in FY25.
These forecasts also consider rupee volatility. With inflationary pressures expected to subside significantly, the RBI has the opportunity to further reduce rates. "We predict a total of up to 75 basis points cut in rates this calendar year. We also foresee a shift in the stance during the next rate cut," the report indicates.
In light of declining inflation and shifting liquidity conditions, India’s 10-year yield has softened. The RBI's extensive measures to manage liquidity through the VRR auction have supported bond yields. Looking ahead, the 10-year yield is projected to fluctuate between 6.65 percent and 6.75 percent in March 2025, with potential risks including tightening liquidity conditions due to tax outflows. "Regarding policy rates, we believe the RBI will adopt a watchful approach before making any decisions in April 2025, given the moderation in headline inflation," the report stated.
Furthermore, the report suggests that an anticipated rebound in domestic GDP growth, stable oil prices, and strong external buffers are favorable for the Indian rupee. Nonetheless, due to ongoing volatility in the global financial landscape, the room for rupee appreciation appears limited. US tariff policies and the dollar will significantly influence the rupee's trajectory moving forward. "We predict a range of 86.75-87.75/$ (and potentially reaching Rs 88/$ before reverting to this range) in the coming month," the report concluded.
