India’s GDP Growth Rebounds Amid Rising Rural Demand and Government Spending

India's economic growth is expected to have rebounded in the October-December quarter, driven by improved rural demand and increased government spending. The economy, which slowed to 5.4% GDP growth in July-September, likely expanded by 6.3% year-on-year in the latest quarter, according to a Reuters poll. However, this remains below the central bank's 6.8% estimate.

Economists attribute the slowdown to weak urban demand and delayed government expenditures due to last year’s elections. Gross value added (GVA), a key indicator of economic activity, is estimated to have grown 6.2%, up from 5.6% in the previous quarter.

Rural consumption has surged following a favorable monsoon, while urban demand shows gradual improvement. Government capital expenditure has also accelerated, supporting economic recovery. "The worst may be over for India’s growth trajectory, but GDP expansion will likely stay below the 7% potential rate in 2025-26," Deutsche Bank stated, forecasting 6.5% growth for the next financial year.

Despite challenges, India remains the fastest-growing major economy. However, uncertainties loom over trade relations with the U.S., particularly with the Trump administration’s proposed reciprocal tariffs. DBS Bank economist Radhika Rao noted that while near-term impacts may be minor, certain sectors could face disruptions.

Manufacturing and services sectors are expected to have remained under pressure due to weak urban consumption. Growth in trade, hotels, transportation, real estate, and financial services likely moderated. However, the agriculture sector provided a boost to overall growth.

Government spending saw double-digit growth in the December quarter, up from a modest 4.4% in the prior period. Revised estimates for the financial year ending March 31 suggest GDP growth at 6.5%, slightly above the previous official forecast of 6.4%, marking the slowest pace in four years.