India`s GDP growth to accelerate in January-March quarter: BoB report
India's GDP growth is expected to accelerate in the Q4 (January-March) quarter of the current financial year based on the high-frequency indicators of the economy, according to a Bank of Baroda report released on Wednesday.
The positive indicators which 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 per cent in January ’25 versus 16.4 per cent in January ’24 and 16.9 per cent in Q3FY25 while toll collections average 16.7 per cent growth in January-February ’25 versus 11.2 per cent in January-February’24 and 14 per cent in Q3FY25.
The report states that while indicators like air passenger traffic and vehicle registrations cooled down in the January-February’25 period, there is an upside bias to GDP growth in Q4FY25 supported by the Kumbh Mela boost to consumption, services and FMCG sector.
For the full year, growth is estimated at 6.5 per cent, given the robust growth in the agriculture sector which has turned out to be a bright spot, registering a robust growth of 5.6 per cent in Q3 compared with 1.5 per cent increase in the same quarter last year, the report states.
The report also expects the RBI to lower key rates further to boost economic growth as inflation has come down.
It points out that the RBI’s monetary policy committee unanimously lowered the repo rate by 25bps from 6.5 per cent to 6.25 per cent. The stance was kept at neutral. The RBI Governor noted the need for a "less restrictive" monetary policy to support growth as inflation remains within the RBI’s targeted band. The central bank expects growth to improve in FY26 to 6.7 per cent from 6.4 per cent in FY25. Inflation is projected to come down to 4.2 per cent in FY26 from 4.8 per cent in FY25. CPI will remain broadly sticky in Q4FY25 (4.4 per cent) and Q1FY26 (4.5 per cent).
These projections also take into account rupee volatility. Inflationary pressures are expected to ease significantly, giving room to the RBI to lower rates further. "We expect up to 75bps (cumulative) reduction in rates in this calendar year. At the time of next rate cut, we also expect a change in stance," the report states.
Given the moderation in inflation and evolving liquidity conditions, India’s 10Y yield eased. Extensive efforts by the RBI in managing liquidity through VRR auction supported bond yields. Going forward, the 10Y yield is expected to trade in the range of 6.65 per cent to 6.75 per cent in March’25, with certain upside risks including tightening liquidity conditions amidst 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," the report stated.
The report further states that an expected rebound in domestic GDP growth, range-bound oil prices, and strong external buffers are positive for the Indian rupee. However, given the continued volatility in the global financial system, the scope of rupee appreciation looks limited. US tariff policies and hence the dollar, will play a greater role in 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,” the report added.
