Resilient growth despite disturbance and challenges
The full year FY25 growth (6.5% vs 9.2% in FY24) came in line with the second advance estimates of NSO; 4QFY25 growth rate (7.4% on a high base of 8.4% in 4QFY24) is much better than the estimates of the market professionals, though in line with NSO advance estimates.
The higher Q4 growth is mostly attributable to—
(i) High gross investment (GCFC) led by the construction sector (4QFY25 10.8%), reflecting strong government capex.
Investment (Gross Fixed Capital Formation or GFCF) grew 9.4% yoy in 4QFY25, marginally above the long-term average. However, the higher public capex seen in 4QFY25 could be due to slow 1HFY25, as government functioning was impacted by the model code of conduct implemented during the general; elections.
(ii) Farm sector growth of 5.4% in 4QFY25 (on a low base of 0.9% in 4QFY24). On a full year basis (FY25) also, the sector was up 4.6%, compared to 2.7% in FY24. If we consider the inclement weather for the most part of FY25, the growth is commendable.
The FY25 growth data is encouraging as it demonstrates the resilience of base growth level of the Indian economy in times of domestic disturbance (general election and inclement weather) and external challenges (slower global growth, volatile energy prices, geopolitical disruptions, etc.).
The government’s focus on austerity measures to optimize the cost of governance and capacity building (infrastructure – physical and social) is a major positive.
Long term growth trajectory recovers to pre-covid period
In FY26 the Indian economy is expected to regain the long-term growth trajectory of 6%+ after five years. For the past 11 yrs (FY15-FY25), the real GDP of India has grown at CAGR of 6.09%. This is slower than the preceding decade, nonetheless quite resilient in view of the global challenges.
Fiscal discipline maintained
One of the key positives of India's growth paradigm in the past one decade has been the commitment to fiscal discipline. Except for deviation during the pandemic period, the government has mostly maintained fiscal discipline.
For FY25RE, fiscal deficit was 4.8% of GDP (vs 5.6% in FY24; FY26BE 4.4%). Subsidies have been cut materially, despite political considerations - FY25 Union Budget subsidies at 1.2% of GDP were lowest in six years; FY26BE are even lower. 4QFY25 net indirect taxes (taxes on products & services minus subsidies) increased sharply by 12.7% yoy. This indicates even lower subsidy payout.
In FY25RE the government cut expenses by Rs 600 billion (vs FY25BE) to offset the Rs 700bn revenue shortfall. The government consumption in 4QFY25 was lower by 1.8% yoy.
FY26 has started on a good note, with April 2025 recording 61% yoy rise in government capex (low base due to general elections in 1QFY25) and ~6% contraction in revenue expenditure. Tax collections were 6.5% yoy higher in April 2025.
RBI has paid Rs2.7trn in dividend to the government in May 2025. This is Rs600bn higher than the budget estimates. This may take care of additional spending on defense etc.
Tomorrow: The Indian economy – glass half empty
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