GDP Preview: Rural demand and services expected to power GDP growth higher

A worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi. Image: Reuters/Anindito Mukherjee

Economic growth in India is likely to show signs of a pick-up on account of higher government spending and demand from rural consumers. 

Data for both the fourth quarter and FY25 slated to be released on May 30 points to an expansion of 6.8 percent in Q4 higher than the 6.2 percent achieved in Q3. This would result in an annual growth of 6.3 percent, lower than the advance estimates of 6.5 percent. 

Economists expect rural demand to be better. “We’ve seen two successive cropping patterns with good output,’ says Sakshi Gupta, principal economist at HDFC Bank. So while urban consumption continues to report sluggish demand rural consumers are likely to pick up the slack. There is some evidence to support this. In March Mahindra and Mahindra saw tractor sales rise to 34,934 units, up 34 percent over the same period last year.  

Another key driver is expected to be government spending, which had slowed down in Q1 and Q2 on account of the election cycle and the formation of the new government. A pick-up in Q4 is also expected to result in a higher GDP print. Going forward, the FY26 GDP spend target has been raised to Rs11.21 lakh crore, marginally above the Rs11.11 lakh crore for FY25.

Lastly, there is services activity which also held up in Q4. Spending was buoyed by the Maha Kumbh in February that saw demand for travel and hospitality rise across the country. Demand for air travel continues to be strong. Interglobe Aviation, which operates IndiGo airlines, posted a Q4 profit of Rs3,067 crore, up 61 percent from Rs1,894 crore. The growth was aided both by rising passenger numbers as well as lower oil prices.