India’s economy grew at 6.5% in FY25, marking the slowest pace since the pandemic, but retained its tag as the world’s fastest-growing major economy . This is a steep decline from the 9.2% expansion recorded in FY24, reflecting global headwinds and tepid private investments.
Q4 GDP Surprises With 7.4% Growth
In a bright spot, the GDP in Q4 (Jan-Mar 2025) expanded by 7.4%, outpacing expectations. This was driven by:
- Strong industrial performance
- Resilient rural demand
- Healthy government spending
Even as the global economic environment worsened due to Trump-era tariffs and the Russia-Ukraine war, India managed to weather the storm.
Private Investment Sluggish Amid Uncertainty
Despite positive quarterly data, private investment remained subdued, impacted by:
- Global uncertainties
- Trade disruptions
- Higher borrowing costs until February
This contributed to the overall slowdown for FY25. The government hopes that the recent 25 bps repo rate cut by RBI will help reverse the trend and stimulate capital spending.
GVA Highlights Underlying Reality
Gross Value Added (GVA), which excludes taxes and subsidies, rose by 6.4%, slightly lower than GDP growth, raising questions about the real momentum of the economy.
Analysts pointed out that lower government subsidies may have inflated the GDP figure.
Global Recognition & Positive Outlook
Despite the challenges, India’s growth trajectory remains promising. The IMF expects India to overtake Japan by end-2025, with an economy of $4.18 trillion.
India benefits from:
- Strong services sector
- Stable banking system
- Manufacturing reforms like the PLI scheme
Economists also noted that retail inflation hit a six-year low of 3.16% in April, with monsoon forecasts indicating further relief in food prices. This opens the door for another RBI rate cut in June.
FY26 Growth & Inflation Forecast
- RBI projects FY26 GDP growth at 6.5%
- CPI inflation is expected to fall from 4.9% in FY25 to 4.3% in FY26
However, inflation risks remain due to volatile global commodity prices and geopolitical tensions.
India’s economic fundamentals remain robust, suggesting a more stable and sustainable growth path ahead.