Economic Growth Slumps to Lowest in Four Years
India’s GDP Growth Slows to 6.5% in FY25, Construction and Exports Boost Q4 Figures
India’s economic growth experienced a slowdown, dropping to a four-year low of 6.5% in FY25 from the previous year’s 9.2%. This decline was primarily attributed to weakened consumption and manufacturing sectors. However, the fourth quarter saw a growth of 7.4%, supported by a robust performance in construction and net exports. Analysts are projecting a growth rate between 6.2–6.5% for FY26, with hopes resting on factors like the monsoon season and potential rate cuts.
Key Insights into India’s Economic Performance in FY25
The data released by the National Statistics Office (NSO) revealed that India’s GDP growth in the fourth quarter of 2024-25 stood at 7.4%, down from 8.4% in the corresponding quarter the previous year. This deceleration was observed across manufacturing, private and government consumption, and essential services sectors. For the entirety of FY25, the GDP expansion was recorded at 6.5%, marking a significant decline from the previous year’s 9.2%. Notably, the fourth quarter GDP figures surpassed analyst estimates, which had anticipated a slightly lower growth rate between 6.8-6.9%.
Factors Driving Q4 Growth and Sectoral Performance
The fourth quarter’s GDP growth was propelled by a surge in construction activity, a stable primary sector, and a substantial contribution from “net exports,” accounting for 3.7% of the GDP. Encouragingly, the growth rate in Q4 exceeded expectations, with net indirect taxes playing a significant role. Throughout FY25, private consumption maintained its share in the GDP, inching up slightly to 56.5%. However, the growth of this crucial element declined both in the annual and quarterly comparisons during the fourth quarter.
Outlook for FY26 and Policy Implications
Looking ahead, analysts anticipate a growth rate below 6.5% for the current fiscal year due to external challenges. The government is relying on income tax cuts and potential rate adjustments by the Reserve Bank of India to drive consumption and investment, aiming to boost FY26 growth towards the upper end of the projected range. Structural reforms and enhanced coordination between the central and state governments are deemed necessary for sustaining economic momentum.
