India’s Economy Set for Growth in Q4FY25 on Growing Capex: UBI Report

According to a recent report released by the Union Bank of India, the Indian economy is on track to receive a significant boost in Q4FY25. The growth in the economy will be backed by the combination of sustained government spending, increased capital expenditure (Capex), and a seasonal upturn in consumption driven by the Maha-Kumbh and wedding season.

Key Drivers of Economic Growth

The report highlights that the Indian government has significantly ramped up its fiscal spending, which is poised to positively impact economic growth in the coming months. Increased capital expenditure, aimed at infrastructure and developmental projects, is set to provide a strong foundation for long-term economic stability. The wedding season, coupled with the Maha-Kumbh festival, is expected to drive a temporary surge in consumer demand, contributing further to growth in Q4FY25.

Additionally, the Reserve Bank of India (RBI) has played a crucial role in supporting growth through a series of monetary policies. The central bank has implemented several rate cuts, liquidity provisions, and regulatory adjustments.

MSME Sector Growth: A Key Focus

One of the key highlights of the report is the emphasis on the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and its role in boosting credit growth, especially for Micro, Small, and Medium Enterprises (MSMEs). The government’s support for MSMEs, in combination with the accommodative measures from the RBI, is expected to enhance liquidity and foster a more favourable credit environment for smaller businesses. This is crucial for maintaining employment levels and spurring innovation, particularly in India’s growing digital and rural economies.

Geopolitical Tensions and Risks to Growth

However, the report does caution about potential risks that could dampen the economic recovery. Global factors, such as escalating geopolitical tensions and ongoing tariff wars, remain a significant concern for the Indian economy. Any disruptions to global trade or shifts in international relations could have a ripple effect, curbing domestic growth prospects.

Despite these risks, India’s economy has shown resilience. The country’s GDP grew by 6.2% in Q3FY25, a rebound from the previous quarter’s 5.6% growth, revised upward from 5.4%. The report projects a promising 7.6% growth in Q4FY25, signalling that the economic recovery is gaining momentum and that a turnaround could be on the horizon.

Sectoral Performance: Agriculture and Manufacturing

The Gross Value Added (GVA) index, which measures the value added by industries, also showed signs of growth. It registered a 6.2% increase in Q3FY25, up from 5.8% in Q2FY25. This growth was largely driven by robust performance in agriculture and industry, with manufacturing activities showing strong results during the quarter. Despite weaker consumption patterns compared to previous years, these sectors are expected to continue to drive economic activity.

A Positive Outlook Despite Global Uncertainty

India’s economic momentum remains promising, even amidst an uncertain global outlook. The resurgence in both rural and urban consumption, particularly during the festive and wedding seasons, is expected to support the economy.

In February 2025, the RBI cut interest rates by 25 basis points, intending to revive investment and boost consumption. The central bank has also been actively managing liquidity through Open Market Operations (OMOs) to ensure that credit flows smoothly to the real economy, especially to sectors that need it most.

Conclusion

The outlook for India’s economy in Q4FY25 is positive, with several factors contributing to the anticipated growth. Increased government spending, a boost in consumption from seasonal factors, and supportive measures from the Reserve Bank of India provide a solid foundation for economic recovery.

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