Economy sputters in Q3, as data throws mixed signals

GDP growth sputters in Q3

India’s economic performance was sputtering in the third quarter of the year, with consumption and capex showing signs of pick-up, even as GST sales growth slowed and manufacturing activity dipped during the month, according to data released at the start of the year.

“We expect the GDP growth to come in at 6.5% in 3QFY25. The infrastructure segment is showing a modest pace of activity, with core sector growth coming at a 4-month high in November 2024. With government capex expected to pick up on 3QFY25, investment demand would be supported well,” said Paras Jasrai, senior analyst, India Ratings and Research.

While Goods and Services Tax collections remained above Rs 1.7 lakh crore mark for the tenth month in a row in December, the pace of growth declined further to 7.3 percent.

Although monthly collections were 3 percent higher than the previous month, averaging Rs 1.82 lakh crore for the October-December period, the growth pace was slower compared with December 2023.

“GST collections slowed down slightly in Q4 2024 due to post-festive season trends and natural recalibration in consumer spending which indicates slow down in the economy in the short run. Over the year, gross collections expanded 8.3 percent in Q3FY25 compared with 8.9 percent growth in the second quarter of FY25,” said Saurabh Agarwal, Tax Partner, EY India.

The PMI data weren’t very encouraging either. Manufacturing activity ended the year at a 12-month low of 56.4 in December.

Manufacturing activity averaged 56.8 in the October-December quarter, the lowest reading in four quarters, compared with 57.4 in the Q2FY25.

Manufacturing activity averaged 58.2 in the first three months of the fiscal.

Coal production also tapered in December, recording 5.3 percent growth in the month compared with 7.2 percent witnessed in the previous month and 7.4 percent in October.

The performance was better than the previous quarter when coal production had risen just 2.4 percent in September and had contracted in August.

Manufacturing had slipped to a six-quarter low of 2.2 percent in Q2FY25, and mining had dipped to a five-quarter low of 3.3 percent.

Consumption showing signs of revival

The consumption side looks better. UPI transactions reached their highest level in the third quarter, even as growth tapered to 40.8 percent from 42.9 percent in the previous month.

The country witnessed 48.8 billion transactions worth Rs 68.3 lakh crore in October-December, up from 44.4 billion transactions of Rs 62 lakh crore in Q2FY25.

“The Unified Payments Interface (UPI) has been a game-changer for India's digital economy, showcasing rapid adoption with growth peaks in mid-2023. However, recent data reveals can only be said to be an indicator of lower consumer spending (which is in line with GDP growth) and should not be seen as tapering growth or market saturation in this industry,” said Agarwal.

The higher consumption was also visible in the sales numbers of automakers.

Maruti Suzuki, the largest seller, witnessed a 24 percent jump in domestic sales in December; Tata Motors was up 2 percent, while Toyota was up 15 percent.

However, Bajaj witnessed a 19 percent decline in the domestic two-wheeler segment. The commercial vehicle segment performed better with a 16 percent rise in sales.