India’s economy is poised for accelerated growth in the final quarter (January-March) of the current financial year, according to a report by Bank of Baroda. Several high-frequency indicators suggest an upward trend in economic activity, reinforcing optimism about the country’s GDP performance.
Key Economic Indicators Show Positive Momentum
Among the major drivers of this growth is an increase in GST collections, which averaged ₹3.8 lakh crore during January-February 2025, significantly higher than the ₹3.4 lakh crore recorded in the same period last year. Additionally, e-way bill generation saw a sharp rise of 23.1% in January 2025, up from 16.4% in January 2024 and 16.9% in the previous quarter (Q3FY25).
Toll collections also reflected an improving economic scenario, growing at 16.7% in the first two months of 2025, compared to 11.2% in the same period last year and 14% in Q3FY25. These indicators point to increased economic activity, particularly in logistics and consumption-driven sectors.
Mixed Performance Across Sectors
Despite these positive signals, some sectors showed signs of moderation. Air passenger traffic and vehicle registrations slowed down in January-February 2025, indicating some softness in consumer sentiment. However, the report suggests that events like the Kumbh Mela are likely to boost demand in the services and FMCG sectors, contributing to overall economic growth.
The agriculture sector, a key component of the economy, emerged as a strong performer. It recorded an impressive 5.6% growth in Q3FY25, a significant improvement from the 1.5% growth seen in the same quarter last year. Given this robust expansion, India’s overall GDP growth for the financial year is estimated at 6.5%.
RBI’s Policy Moves and Inflation Outlook
With inflation gradually easing, the Reserve Bank of India (RBI) has taken a step toward supporting economic growth by lowering the repo rate by 25 basis points (bps) to 6.25%. The policy stance remains neutral, but the central bank has signaled a shift toward a “less restrictive” monetary approach.
Looking ahead, GDP growth for FY26 is projected to rise to 6.7%, up from the expected 6.4% in FY25. Meanwhile, inflation is forecasted to decline to 4.2% in FY26, compared to 4.8% in FY25. In the near term, the Consumer Price Index (CPI) is expected to remain steady at 4.4% in Q4FY25 and 4.5% in Q1FY26.
The Bank of Baroda report anticipates further rate cuts by the RBI, with a total reduction of up to 75bps in 2025. However, the timing of these cuts will depend on inflation trends and liquidity conditions.
Bond Yields and Currency Trends
India’s 10-year bond yield has eased, driven by RBI’s liquidity management efforts through Variable Rate Reverse Repo (VRR) auctions. The yield is expected to remain in the range of 6.65% to 6.75% in March 2025, though potential risks such as tighter liquidity due to tax outflows could influence movements.
On the currency front, the Indian rupee is expected to remain under pressure due to global financial volatility and US trade policies. The report projects the rupee to trade between ₹86.75-₹87.75 per US dollar, with a possible temporary depreciation to ₹88 before stabilizing within this range.
Outlook for the Indian Economy
Overall, the Indian economy remains on a strong growth trajectory, supported by robust tax collections, agricultural expansion, and improving infrastructure activity. While some sectors face headwinds, factors like policy support from the RBI, stable oil prices, and strong external buffers are expected to provide stability.
With inflation moderating and liquidity conditions evolving, the RBI is likely to continue its calibrated approach toward interest rate cuts. However, uncertainties in global financial markets and exchange rate fluctuations will remain key factors to watch in the coming months.
