New Delhi, May 16 : The Indian economy is expected to grow at 6.8-7 per cent in the fourth quarter of the financial year 2024-25, driven by the agriculture sector, according to a Bank of Baroda report released on Friday.

For the full financial year, the estimate has been pegged at 6.2-6.4 per cent with the report stating that India's economy continues to be better off than its global counterparts on the back of strong macroeconomic fundamentals.

Going ahead for FY26, growth will be at a similar level of 6.4-6.6 per cent with brighter prospects supported by monetary easing, lower inflation, sound domestic demand aided by a budgetary push and sustained capex spending, according to the report.

However, any geopolitical conflict and global tariff imposition can have an adverse impact on this optimism, it points out.

The report states that robust agriculture growth is expected at 7.7 per cent in Q4FY25. This will be much higher growth compared with 0.9 per cent growth noted in Q4FY24. This has been on the back of the record foodgrain production as has been noted in the 2nd advance estimates which includes estimates for both kharif and rabi crops.

Growth in Q4, though higher than Q3, is, however, uneven across sectors with a few of them registering better growth than others.

On the industry side, the mining sector is expected to clock 1.5 per cent growth in Q4FY25 against 0.8 per cent growth registered for the same period last year. On the other hand, growth in the manufacturing sector is likely to soften down to 1.8 per cent from 11.3 per cent in Q4FY24. This is partially attributable to an unfavourable base and also to weaker corporate earnings. Lower profit margins were visible in the corporate performance of industries such as iron and steel, capital goods, textiles, amongst others. The deceleration was noted despite softer commodity prices. Slower growth is also expected in the electricity sector at 5.5 per cent compared with 8.8 per cent in Q4FY24.

The construction sector is expected to grow at a solid pace on the back of the improvement in steel and cement output in Q4. Sustained thrust on government capex bodes well for this sector.

For services, a mixed trend has been visible. Marriage season and Mahakumbh are expected to boost not only the hospitality sector, but also sectors such as transport, logistics, food and beverages, amongst others. The trade, hotels and transport sector is likely to expand by 6.4 per cent in Q4 from 6.2 per cent in Q4FY24. GST tax collections continue to grow at a steady pace. Financial sector growth (6.6 per cent from 9 per cent) is expected to grow at a slower pace amidst lower credit growth in the same period.

Public administration and defence will register some acceleration amidst an uptick in net revenue expenditure.

On the outlook ahead, the report states that rural demand in FY26 is likely to continue the upward momentum given the expectation of a favourable monsoon. Neutral ENSO conditions are expected to prevail in the coming months (NOAA), which bodes well for agricultural growth. Consumption is also expected to pick up pace, as this will be supported by the higher disposable income amidst new tax incentives. Furthermore, continuity of easing cycle given lower inflation will provide a cushion to growth. Lower commodity prices are expected to offer further support.

"Based on the above, we expect the Indian economy to clock 6.4-6.6 per cent growth in FY26. However, there are downside risks to these projections, especially for the external sector, emerging from the global stage, given the evolving global tariff challenge. Although any possible bilateral trade between the US and India will be positive. Additionally, any adverse geopolitical conflict or extreme weather condition is likely to act as a growth hindrance," the report said.

/IANS