According to a Bank of Baroda research released on Wednesday, India’s GDP growth is predicted to accelerate in the fourth quarter (January-March) of the current fiscal year based on economic high-frequency indicators.
The positive indicators that are showing an improvement in Q4 include the increase in GST collections, which average Rs 3.8 lakh crore in January-February’25, up from Rs 3.4 lakh crore in January-February’24, e-way bill generation, which has risen to 23.1 percent in January ’25 versus 16.4 percent in January ’24 and 16.9 percent in Q3FY25, and toll collections, which average 16.7 percent growth in January-February’25 versus 11.2 percent in January-February’24 and 14.
According to the analysis, while indicators such as air passenger traffic and vehicle registrations cooled in January-February’25, there is an upside bias to GDP growth in Q4FY25, which is being supported by the Kumbh Mela boost to consumption, services, and the FMCG sector.
The full-year growth rate is expected to be 6.5%, owing to solid development in the agriculture sector, which has proven to be a bright spot, showing a robust growth of 5.6% in Q3 compared to a 1.5% increase in the same quarter last year, according to the research.
The research also expects the RBI to drop key interest rates further to stimulate economic growth now that inflation has decreased.
It notes that the RBI’s monetary policy committee unanimously cut the repo rate by 25 basis points, from 6.5 percent to 6.25 percent. The stance was kept neutral. The RBI Governor emphasised the need for a “less restrictive” monetary policy to assist growth as inflation stays within the RBI’s target range. The central bank anticipates growth to increase to 6.7 percent in FY26, up from 6.4 percent last year. Inflation is expected to fall to 4.2 percent in FY26, from 4.8 percent in FY25. CPI will be broadly steady in Q4FY25 (4.4%) and Q1FY26 (4.5%).
These forecasts take into consideration rupee volatility. Inflationary pressures are projected to ease significantly, providing the RBI room to decrease interest rates further. “We anticipate a 75 basis point (cumulative) rate drop this calendar year. We anticipate a shift in posture at the next rate cut,” according to the research.
India’s 10-year bond yield fell as inflation slowed and liquidity conditions improved. The RBI’s extensive attempts to manage liquidity through VRR auctions bolstered bond yields. Going forward, the 10-year yield is likely to fluctuate between 6.65 percent and 6.75 percent in March’25, with some upside risks including tightening liquidity circumstances due to tax outflows. “On policy rate, we anticipate RBI will wait and watch before taking any action in April’25 given the moderation in headline inflation,” according to the study.
The research also adds that a projected rebound in domestic GDP growth, range-bound oil prices, and strong external buffers are all bullish for the Indian rupee. However, given the ongoing volatility in the global financial system, the scope for rupee appreciation appears limited. US trade policy, and hence the dollar, will have a stronger impact on where the rupee goes from here. “We expect a range of 86.75-87.75/$ (and could also touch Rs 88/$ before reverting to this range) in the coming month,” according to the research.
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