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INDIA’S REAL Gross Domestic Product (GDP) gained strength as it picked up pace sequentially to a four-quarter high of 7.4 per cent in January-March on the back of firm industrial growth in manufacturing, construction and mining sectors even as consumption demand slowed down. The full-year growth rate, however, is estimated to have slowed to a four-year low of 6.5 per cent for financial year 2024-25, the same level as the second advance estimates released February-end, data released by the National Statistics Office (NSO) on Friday showed.
GDP had grown 8.4 per cent in Q4 in 2023-24 and 9.2 per cent in FY24. The growth rate for the previous quarter was also revised up, with Q3 growth now estimated at 6.4 per cent as against 6.2 per cent earlier.
Industrial growth picked up pace to 6.8 per cent in Q4 FY25 from 5.1 per cent in Q3 even though it was slower than the 10.2 per cent growth seen in Q4 FY24. Manufacturing growth rose to a three-quarter high of 4.8 per cent in January-March, while the construction sector clocked a double-digit growth rate of 10.8 per cent. In the year-ago period, manufacturing had grown 11.3 per cent, while construction growth was 8.7 per cent.
Union Finance Minister Nirmala Sitharaman also highlighted the strong manufacturing growth in Q4. “Everyone would tell us — oh, the Indian industry is not investing, capacities are not widening, not expanding. What would happen? I am glad… India’s industry, the manufacturing activity, have all been so good during Q4. Growth in Q4 alone was 7.4 per cent… as a result, for the entire financial year 2024-25… the GDP numbers are 6.5 (per cent),” she said at an event in Delhi after the release of the GDP data.
Sitharaman said that although the growth numbers were over 9 per cent after Covid due to low base, India has sustained the fastest-growing economy tag for the fourth year now. “…when you start from a low base, when you had a lockdown, you had that number (over 9 per cent growth). But India is sustaining this growth as the fastest-growing economy now for the fourth year, continuously without a break. Thanks to the work of our small and medium, large industries. Industries, which are coming in and making sure our manufacturing capacity, our service capacity, are all intact. And agriculture has also sustained us even during Covid and subsequently,” she said, adding that the numbers prove wrong all the naysayers who raise a doubt of suspicion.
Chief Economic Adviser V Anantha Nageswaran said GDP’s provisional estimates for FY25 are in line with the expectation of 6.5 per cent and India is “holding up its growth numbers” better than many advanced economies, especially in a “growth-scarce environment globally”. For the current financial year, he said, the government has retained its outlook at 6.3-6.8 per cent, with private consumption, especially the rural rebound, and resilient services exports as the key drivers.
“Interest rate moderation by the RBI and the tax relief provided by the government are expected to boost overall consumption. Capital formation by the private sector is also likely to improve, as capacity utilisation levels are high,” he said.
Growth rate in Gross Value Added (GVA) terms came in lower than GDP at 6.8 per cent in January-March. GVA growth was 6.5 per cent in the previous quarter and 7.3 per cent in Q4 FY24. GDP is GVA plus net product taxes (taxes – subsidies). The wide divergence between GVA and GDP rates are being seen on account of a sharp jump in net taxes, which grew by 12.7 per cent in Q4 as against 5 per cent growth in the previous quarter and 18.7 per cent growth in the year-ago period.
For the full financial year FY25, GVA growth was recorded at 6.4 per cent as against 8.6 per cent in FY24.
The upward growth momentum in Q4 was also seen for mining that grew 2.5 per cent as against 1.3 per cent in Q3 and 0.8 per cent in Q4 FY24. Agriculture is estimated to have grown 5.4 per cent in Q4, slower than 6.6 per cent but much higher than 0.9 per cent in Q4 FY24. Services sector’s growth remained steady over 7 per cent at 7.3 per cent in Q4. It had grown 7.4 per cent in the previous quarter and 7.8 per cent in Q4 FY24.
Growth in private final consumption expenditure (PFCE) — an indicator of consumption demand — slowed to a five-quarter low of 6.0 per cent in Q4 as against 8.1 per cent in the previous quarter and 6.2 per cent in the year-ago period, indicating a tempering of demand at the higher-income levels.
“It appears to be due to the slowing trend at the upper-end of the income ladder. The FMCG sales volume moderated in Q4 FY25 with the urban areas showing a tepid growth of 2.6 per cent YoY which was less than a third of that of the rural areas. In addition, the sharp decline in imports also points to slow spending done by the upper end income strata. Nevertheless, the personal consumption demand has held up well (Q3 FY23-Q3 FY25: 5.5 per cent YoY) due to the gradual catchup and recovery in the income growth of the lower strata is correcting the skewness in consumption demand,” said Paras Jasrai, economist and associate director, India Ratings and Research.
Investment demand, as indicated by Gross Fixed Capital Formation (GFCF), picked up pace to 9.4 per cent in Q4 as against 5.2 per cent in Q3 and 6.0 per cent in the year-ago period. Even though the government final consumption expenditure (GFCE) contracted by 1.8 per cent in Q4, the expenditure in absolute terms was the highest among all quarters in FY25 at Rs 5,08,419 crore.
GROWTH FOR FY25 has stayed resilient, remaining at the same level as the second advance estimate of 6.5%. GDP for the fourth quarter came as a surprise by growing strongly at 7.4% on the back of firm industrial growth, with construction recording a double-digit expansion.
Economists said the pickup in the year-end government expenditure supported growth along with an uptick in investment demand but the trend needs to be watched out. “The seasonal rush to meet their capex targets by both union and state governments along with the private sector (there has been an increase in capex intentions as per the latest NSO survey data), it appears provided succour to the investment demand in Q4 FY25. The pickup in investment demand is significant but needs to be watched out for a sustainable trend in view of the economic uncertainty and the weak foreign investment demand (as indicated by the net FDI inflow),” Jasrai said.
Going ahead, economists see a slightly slower growth in FY26 amid heightened uncertainty around global trade policies. “…private consumption and government investment appears largely resilient, given the personal income tax relief, monetary easing, expectations of an above normal monsoon and lower food inflation, and the healthy growth in budgeted capex of the GoI and state governments. The outlook for merchandise and IT exports, and private capex, especially in export-oriented sectors, appears muted, although the relative tariff scenario will evolve as the year progresses. At present, ICRA forecasts GDP growth to dip slightly to 6.2 per cent in FY26 from 6.5 per cent in FY25,” said Aditi Nayar, Chief Economist, ICRA.
FY26 will be marred by global uncertainties weighing on corporate investment intentions and exports growth, while easing urban incomes will weigh on private consumption, Madhavi Arora, Chief Economist, Emkay Global Financial Services, said.
“Looking ahead, we remain cautious about the subdued activity among private economic agents and are closely monitoring global headwinds…while countercyclical monetary policy may offer some relief, the space for conventional fiscal support appears limited. We mark down our FY26 GDP growth estimate to 6 per cent, factoring in weaker global momentum and muted domestic drivers,” Arora said.
