India's GDP expands 7.4% in Q4 to meet annual growth estimates of 6.5%

Nominal GDP for FY25 grew at single digit at 9.8 per cent to Rs 330.7 trillion, slightly higher than Rs 324.1 trillion factored in the Budget

India’s economic growth rebounded to a four-quarter high of 7.4 per cent in the January-March period of 2024-25 (FY25), aligning with the annual growth estimate of 6.5 per cent, according to provisional estimates of gross domestic product (GDP) released by the National Statistics Office (NSO).

 

The final-quarter performance outpaced expectations, beating both the Reserve Bank of India’s (RBI’s) forecast of 7.2 per cent and a Reuters poll of economists that had projected 6.7 per cent growth.

 

Nominal GDP for the full financial year rose 9.8 per cent to ₹330.7 trillion, slightly above the ₹324.1 trillion estimated in the Union Budget. This boost helped the government perform marginally better on fiscal deficit, which stood at 4.77 per cent of GDP in FY25, against the revised estimate of 4.84 per cent.

 

Gross value added (GVA) grew at a slower rate than GDP — at 6.8 per cent — in the March quarter, widening the gap between GDP and GVA due to a surge in net taxes (taxes minus subsidies), as government subsidy payouts contracted during the period. 

 

Now, economists believe uncertainty because of the tariff war triggered by US President Donald Trump’s policies and weak urban demand will shape India’s FY26 growth outlook, even as further policy rate cuts by the RBI will support economic recovery.

 

“The momentum of the economy, which picked up in the fourth quarter, is continuing into the first quarter (of FY26), and that’s a good sign,” said V Anantha Nageswaran, chief economic advisor in the finance ministry, while briefing reporters after the release of GDP data. He said high-frequency indicators for April showed strong industrial and commercial activity, and noted that interest rate moderation and recent tax relief measures would likely support consumption.

 

Sakshi Gupta, principal economist at HDFC Bank, noted that while FY25 GDP growth moderated from the previous year’s 9.2 per cent, the economy recovered from the sluggish performance in the first half of FY25. “Average growth for H2 stood at 6.9 per cent versus 6.1 per cent in H1FY25. Growth in the second half was supported by a rise in government capex and construction activity, healthy agriculture performance, and continued momentum in the service sector,” she said. 

 

Agriculture grew 5.4 per cent in the March quarter, buoyed by strong reservoir levels and robust rabi sowing. Manufacturing expanded 4.8 per cent — a three-quarter high rate — helped by subdued input cost inflation. The labour-intensive construction sector surged 10.8 per cent, marking a six-quarter high.

 

The services sector expanded 7.3 per cent, with public administration, defence, and other government services leading the way with 8.7 per cent growth. However, segments like trade, transport, communication, and broadcasting recorded slightly slower growth at 6 per cent, down from 6.2 per cent a year earlier, despite the festival boost from events like the Mahakumbh. Financial, real estate, and professional services also slowed to 7.8 per cent from 9 per cent in the same quarter a year ago, possibly reflecting weaker credit and deposit growth. Public sector-driven services remained strong, as both central and state governments pushed to accelerate projects in the final three months of FY25.

 

Net exports turned positive in the March quarter after three consecutive quarters of drag. “The 8.3 per cent growth in exports in FY25 was mainly due to better performance of services, given that exports of goods were virtually flat,” said Madan Sabnavis, chief economist, Bank of Baroda.

 

On the supply side, private final consumption expenditure growth moderated to 6 per cent, while government consumption spending declined 1.8 per cent, partly due to the high base of a year ago. Investment demand, measured through gross fixed capital formation, rose by 9.4 per cent in the March 2025 quarter.

 

“The seasonal rush by both Union and state governments to meet their capex targets, along with the private sector (there has been an increase in capex intentions based on the latest NSO survey data), appears to have provided succour to the investment demand in Q4FY25,” said Paras Jasrai, associate director, India Ratings. “The pickup in investment demand is significant but needs to be watched for a sustainable trend in view of economic uncertainty and weak foreign investment demand as indicated by the net FDI inflow.”

 

Rajani Sinha, chief economist, CareEdge Ratings, said the uneven pace of consumption recovery remained a key “monitorable”. “The strength in rural demand is expected to continue on the back of favourable monsoon prospects, healthy reservoir levels and upbeat agricultural output. However, the softness in urban demand continues to be an area of concern,” she said.

 

Sinha also warned that despite the US placing reciprocal tariffs on hold for 90 days, global economic uncertainty was likely to persist. “This is likely to weigh on the private investment impulses. Given this context, a broadbased and durable consumption recovery, along with a revival in the government’s capex, becomes increasingly critical for a revival in the private capex cycle. Factoring all of these aspects, we expect GDP growth in FY26 to be 6.2 per cent,” she added.