Key Drivers of India’s Economic Growth in Q3 FY 2024-25

India’s economy is showing signs of renewed momentum, with GDP growth reaching 6.2% in the third quarter (October-December) of FY 2024-25, according to a report by Morgan Stanley. The global financial firm stated that the latest GDP data validates its economic outlook. It confirms that India’s growth trajectory is accelerating once again.

Morgan Stanley attributed this resurgence to a supportive monetary policy and declining interest rates. Increased liquidity and regulatory easing have also contributed. These factors have created a favorable environment for higher capital expenditure. They have also encouraged stronger domestic consumption. The report also highlighted that growth in service exports is a positive sign for the job market. This growth further aids economic expansion.

Mixed Signals from January-February Data

The report noted that the December quarter GDP figures reaffirmed a strong recovery. However, high-frequency indicators from January and February present a mixed picture. They suggest that the recovery is gradual but steady.

Morgan Stanley lowered its growth forecast for the fourth quarter (January-March) of FY25 from the government’s 7.6% estimate to around 6.7%, citing potential moderation in certain economic activities. For the full financial year 2024-25, the firm predicts GDP growth to settle at 6.3%.

Key Growth Drivers: Private and Government Spending

According to the report, India’s Q3 GDP growth was primarily driven by private consumption, which grew 6.9% year-on-year, reflecting strong consumer demand. Government expenditure, which increased 8.3% year-on-year, marking the highest growth in five quarters due to higher public spending.
In Sectors, manufacturing and services Shine while construction Slows. Industrial growth saw increased manufacturing activity, along with higher demand for electricity and gas. The services sector remained a key growth engine. It was led by trade, hotels, transport, and communication services. These sectors benefited from the holiday season. Construction activity, however, showed a slower pace of expansion compared to the previous quarter.

Gradual Recovery to Continue

The latest data confirms that India’s economy is on an upward trajectory. However, Morgan Stanley maintains a cautious optimism. They cite global economic conditions and domestic policy measures as key factors. These factors will shape growth in the coming quarters.