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HomeNewsBusinessEconomyInvestment in economy helped Q4FY25 GDP but need to see if trend sustains, say economists

Investment in economy helped Q4FY25 GDP but need to see if trend sustains, say economists

Data released by the finance ministry showed that in Q4FY25, the central government’s capital spending jumped 33.1% on year as compared to a mere 1% growth recorded in the first nine months (April-December) of FY25. 

May 30, 2025 / 19:27 IST
The GFCF’s share in GDP rose to 33.9% in Q4FY25 from 31.7% in Q3.

Growth in total investment in the economy played a key role in driving GDP growth to a four-quarter high of 7.4% in Q4FY25.

As a percentage of GDP, gross fixed capital formation (GFCF) - an indicator of investment in the economy - grew by 9.4% in Q4FY25, fastest during last six quarters. The GFCF’s share in GDP rose to 33.9% during Q4FY25 from 31.7% in Q3FY25. Economists said this is mainly due to a pick up in capex by both Centre and states in the last quarter of the previous fiscal.

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"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) provided succour to investments in Q4FY25," said Paras Jasrai, associate director, India Ratings.

"Investments, mainly from the public side, have outshone while private capex remains tepid, albeit expected due to the global and economic frictions leading to some hesitation in the market," Sankar Chakraborti, CEO, Acuite Ratings & Research said.

Finance Ministry data showed that in Q4FY25, Centre's capital spending jumped 33.1% on year as compared to a mere 1% growth during the first nine months (April-December) of FY25. Specifically, March saw a capex of Rs 2.4 lakh crore, which is 67.2% higher than a year ago.

For the entire financial year, central government's capex grew by 10.8% to Rs 10.5 lakh crore, which is 103.3% of the revised Budget Estimate.

However, according to former finance secretary SC Garg, the actual capex numbers - which lead to infrastructure creation on ground - are still lower than what is reported by the government. "It could be that capex figures are not reflecting actual capex numbers. In October-November, the central government capex was used to repay debt of NHAI. So, I’m not sure, if March figures do reflect actual capex on ground," Garg said.

Going forward, the growth in investment needs to be watched out for a sustainable trend, given the economic uncertainty and weak foreign investment demand, economists have said. The net FDI inflow in FY25 were mere $0.35 billion, 96% lower than $10.13 billion seen in FY24.

"We expect growth to stabilise around the mid-6% range at the start of FY26, supported by farm output, relief in purchasing power from lower inflation and monetary easing, as well as continued public spending. However, external uncertainties could have an impact through trade and investment channels," said Radhika Rao, Senior Economist at DBS Bank.

 

Priyansh Verma
first published: May 30, 2025 07:26 pm

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