India's GDP growth rises to a four-quarter high of 7.4% in Q4FY25, full-year at 6.5%

GDP growth for Q4FY25 and FY25

The GDP growth touched a four-quarter high of 7.4 percent in the last and final quarter of FY25, with full-year growth ending at 6.5 percent, as investment demand, helped by public spending, lifted the economy,  according to data released by the government on May 30.

"The Q4 growth print partly reflects the back loaded spending effect of the government, both centre and states, led more by public capex spending. As a whole the growth has been in line with the government estimates, with capital formation staying broadly steady," said Madhavi Arora, chief economist, Emkay Global.

The Friday print was higher than a Moneycontrol poll conducted earlier this week, which had pegged GDP growth at 6.9 percent for the January-March quarter, and 6.3 percent for FY25.

"At real GDP growth at 6.5 percent for FY25 India outshines in view of other economies still recovering from Covid," said chief economic advisor V Anantha Nageswaran at a press conference post GDP release.

The GDP growth was higher than the previous quarter number of 6.4 percent, but lower than the 8.4 percent growth logged in the fourth quarter of FY24.

Experts indicate that private sector may also have had a role to play in investment demand rising to a six quarter high of 9.4 percent.

"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 4QFY25," said Paras Jasrai, associate director, EY.

GVA-GDP gap

A lower subsidy bill also helped lift numbers for the quarter, as gross value added, which reflects economic activity sans the effect of next taxes, was more muted at 6.8 percent compared with 6.5 percent in the previous quarter.

Net taxes expanded 12.7 percent in real terms and 22.7 percent in nominal terms from a year ago period. In the third quarter, net indirect taxes had recorded a 5 percent and 6.5 percent growth, respectively.

“The 4QFY25 GDP numbers are marginally higher than our expectations but broadly tracking the government’s earlier estimate. The GVA estimate however remain more tepid at 6.8%. Expectedly, The high net indirect tax growth has led to the wide gap between the two," said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

The gap between GVA-GDP was the highest in four quarters as well.

Agriculture, construction and capital formation lead

The growth in the fourth quarter was led by agriculture, construction and capital formation, as manufacturing continued to disappoint.

Agriculture growth rose to 5.4 percent from 0.9 percent during the same quarter last year. Manufacturing despite the pick up from previous quarter at 4.8 percent was down from 11.2 percent in Q4FY24.

On an annual basis, growth in agriculture was at a five year high.

On the expenditure side, capital formation rose 9.4 percent, up from 6 percent in Q4FY24 and 5.2 percent in Q3FY25.

The share of gross fixed capital formation at 33.9 percent was higher than 33.3 percent during the fourth quarter of the previous year.

Construction also outperformed with 10.8 percent from 7.9 percent in the previous quarter and 8.7 percent during the same quarter last year.

Services performance was steady as they rose 7.3 percent from 7.4 percent in Q3FY25 and 7.8 percent in Q4FY24.

Steady ahead

Economists contend that economy’s growth momentum is likely to continue despite an uncertain global environment.

India’s economy is expected to grow 6.3 percent in FY26 as per MC poll, with inflation settling lower at 3.7 percent.