Do it yourself

 While the 7.4% GDP growth number for 4QFY25, and claims of continuing strong growth momentum in April 2025 are encouraging, the RBI assessment of FY26 growth and aggressive policy stance raise some doubts. A careful analysis of the GDP data released by the NSO also leaves some doubts about the consistency and sustainability of the 4QFY25 growth numbers.

Many economists have noted discrepancies and incongruencies in the data, as well as comparisons with other economic indicators and external analyses.

For example, I found the following noteworthy.

Discrepancy Between GDP and GVA Growth Rates

In Q4 FY25, GDP growth is 7.4%, while GVA growth is 6.8%. The divergence between GDP and GVA growth rates is notable, as GDP includes net taxes (taxes minus subsidies), which can distort the picture of underlying economic activity captured by GVA.

The gap suggests that tax revenues or subsidy adjustments may have inflated GDP growth relative to GVA. For instance, higher GST collections or reduced subsidies might have boosted GDP figures without reflecting proportional growth in actual economic output. This discrepancy raises questions about the sustainability of growth driven by fiscal adjustments rather than core sectoral performance.

As per Systematix research, “Recent robust GST collections have been interpreted as evidence of strong economic growth, supporting the 4QFY25 real GDP growth of 7.4%. However, this narrative contrasts with on-ground economic indicators suggesting a demand slowdown. Our analysis reveals that rising GST collections stem not from stronger economic growth but from increased indirect tax incidence in a slowing economy. This trend aligns with the government’s pro-cyclical fiscal tightening framework over recent years. We estimate an excess tax collection of INR 2.9 trillion over the past two years (2QFY24–1QFY26E), which has elevated the net indirect tax burden on Indian households to a historical peak. This has suppressed household spending power, exacerbating the lack of real income growth.”

Q2 FY25 Growth Slowdown vs. Q4 Recovery

2QFY25 reported a seven-quarter low GDP growth of 5.4%. 1QFY25 growth slowdown could be explained by the spending restrictions due to the imposition of the model code of conduct during the general elections (March-June 2025). Logically, 2QFY25 should have witnessed excessive government spending due to spillover effects from the previous quarter.

The rapid recovery from 5.4% in Q2 to 7.4% in Q4 appears inconsistent with the broader FY25 growth of 6.5%, suggesting uneven economic momentum. The low Q2 growth was attributed to reduced government spending and weak private investment, but the factors driving the Q4 rebound (e.g., manufacturing and construction) are not fully explained in the press release.

Sectoral Growth Inconsistencies

Agriculture (3.8% in FY25)

The agriculture sector’s growth improved significantly from 1.4% in FY24 to 3.8% in FY25, attributed to a good monsoon. However, this contrasts with reports of uneven monsoon distribution and challenges like low reservoir levels in some regions, which could have limited agricultural output in certain areas.

The uniform 3.8% growth figure may mask regional variations or overstate the sector’s recovery, especially since agricultural income growth (e.g., farm wages) has not kept pace, as noted in some external analyses.

Manufacturing (5.0% in FY25)

Manufacturing growth slowed sharply from 9.9% in FY24 to 5.0% in FY25, yet Q4 FY25 GDP growth (7.4%) suggests a manufacturing rebound. This is inconsistent with high-frequency indicators like the Index of Industrial Production (IIP), which showed subdued industrial activity in most parts of FY25.

The slowdown aligns with high input costs and weak export demand, but the Q4 recovery lacks detailed sectoral data to confirm whether manufacturing truly drove the uptick or if other factors (e.g., statistical adjustments) played a role.

Construction (9.4% in FY25)

Construction grew at 9.4%, down slightly from 10.4% in FY24, yet government capital expenditure reportedly slowed in FY25. This raises questions about the source of growth, as public infrastructure spending is a key driver of construction.

Private sector construction (e.g., real estate) may have contributed, but the press release does not disaggregate public vs. private contributions, creating ambiguity.

Expenditure-Side Discrepancies

Private Final Consumption Expenditure (PFCE) grew at 7.2% in FY25 (up from 5.6% in FY24), indicating strong household spending. However, this contrasts with external reports of weak rural demand and urban consumption slowdowns, particularly in discretionary goods (e.g., automobiles, FMCG).

The robust PFCE growth may be driven by urban or high-income consumption, but the lack of granular data obscures whether this reflects broad-based demand or is skewed by specific segments.

Government Final Consumption Expenditure (GFCE) growth slowed to 2.3% in FY25 from 8.1% in FY24, reflecting fiscal consolidation. However, the strong Q4 GDP growth (7.4%) and high growth in public administration (7.8%) suggest continued government spending in certain areas, creating a potential mismatch.

The low GFCE growth may understate government contributions in Q4, or the sectoral growth in public administration may reflect non-expenditure factors (e.g., statistical adjustments).

Gross Fixed Capital Formation (GFCF) growth slowed to 7.1% in FY25 from 8.8% in FY24, indicating weaker investment. This aligns with reports of sluggish private investment but contrasts with the strong construction sector growth (9.4%), which typically relies on capital investment.

The disconnect suggests that construction growth may be driven by specific sub-sectors (e.g., real estate) rather than broad investment, but the press release lacks clarity on this.

Mismatch with High-Frequency Indicators

The GDP growth of 6.5% for FY25 and 7.4% for Q4 FY25 appears optimistic compared to high-frequency indicators like-

Index of Industrial Production (IIP): Showed weaker industrial growth, particularly in manufacturing, contradicting the Q4 rebound.

Purchasing Managers’ Index (PMI): Indicated slower manufacturing and services activity in parts of FY25.

Core Sector Output: The eight core industries (e.g., coal, steel, cement) showed subdued growth in some quarters, inconsistent with the strong construction and manufacturing contributions in Q4.

These indicators suggest a more sluggish economy than the NSO’s GDP figures imply, raising concerns about potential overestimation or statistical discrepancies in the GDP calculations.

Comparison with External Forecasts

The NSO’s FY25 GDP growth estimate of 6.5% is lower than the Reserve Bank of India’s (RBI) revised forecast of 6.6% (down from 7.2%) but higher than some private forecasts (e.g., 6.0–6.3% by agencies like ICRA or SBI). The Q4 growth of 7.4% also exceeds many analysts’ expectations (e.g., 6.8% median estimate).

The higher-than-expected Q4 growth and the annual estimate suggest either a stronger-than-anticipated recovery or potential overestimation in the NSO’s provisional data. The reliance on provisional estimates, which are subject to revision, adds uncertainty.

Other disconnects

There are some other disconnects in the GDP data. For example, the nominal growth in 4QFY25 at 10.8%, much ahead of money supply growth of 9.6% is fully explained. A growing economy would usually need higher money supply due to higher transaction demand. This mismatch can probably be explained by the use of an erroneous deflator. Besides, external trade data, sharp contraction in subsidy payments etc. also raise some doubts.

Also read

The state of the Indian economy

The Indian economy – glass half full

The Indian economy – glass half empty

RBI makes a bold bet

The National Statistical Office (NSO) released provisional estimates (PE) of the annual growth statistics for the Indian economy, last Friday. The data indicates that the Indian economy grew at a rate of 7.4% (real GDP) in 4QFY25 and at a rate of 6.5% for the full year FY25.

The key highlights of the growth data could be listed as follows:

FY25 Growth

Real GDP: Estimated at ₹187.97 lakh crore at constant (2011-12) prices.

Growth rate: 6.5% compared to ₹176.51 lakh crore in FY 2023-24 (8.2% growth in FY24).

Nominal GDP: Estimated at ₹330.68 lakh crore.

Growth rate: 9.8% compared to ₹301.23 lakh crore in FY 2023-24.

Real Gross Value Added (GVA): Estimated at ₹171.87 lakh crore at constant prices.

Growth rate: 6.4% compared to 7.2% in FY 2023-24.

Nominal GVA: Growth rate: 9.5% compared to 8.5% in FY 2023-24.

Quarterly GDP Estimates for Q4 FY 2024-25 (January-March 2025)

Real GDP: Estimated at ₹51.35 lakh crore at constant prices.

Growth rate: 7.4% compared to ₹47.82 lakh crore in Q4 FY 2023-24.

Real GVA: Estimated at ₹45.76 lakh crore at constant prices.

Growth rate: 6.8% compared to Q4 FY 2023-24.

Observations

The 6.5% real GDP growth in FY25 is lower than the 8.2% recorded in FY24, reflecting a slowdown attributed to factors like reduced government capital expenditure and sluggish private investment.

The Q4 FY25 growth of 7.4% indicates a rebound from the 5.4% growth in Q2 FY25, driven by strong performances in manufacturing, construction, financial services, and agriculture, supported by a good monsoon and easing inflation.

The agriculture sector’s improved performance (3.8% growth) is a notable positive, while manufacturing and mining sectors saw slower growth compared to FY24.

The estimates are provisional and subject to revision as more data becomes available, with the next update (Second Advance Estimates and Q3 FY25 data) scheduled for February 28, 2025.

Sectoral trends

In FY25, most sectors experienced slower growth in FY25 compared to FY24, contributing to the overall real GVA growth of 6.4% (down from 7.2%). The slowdown is attributed to a high base effect from FY24, reduced government capital expenditure, high interest rates, and global economic challenges.

Agriculture’s recovery (3.8%) and construction’s robust growth (9.4%) were key positives, supported by favorable monsoons and infrastructure investments, respectively. Q4 FY25 showed a rebound (6.8% GVA growth), indicating improving economic momentum.

Manufacturing (5.0%) and mining (4.2%) remained the key areas of concerns, reflecting industrial and external demand weaknesses. Trade and hospitality also saw moderated growth due to cautious consumer behavior.

Agriculture, Livestock, Forestry, and Fishing

Growth Rate: 3.8% in FY25 (up from 1.4% in FY24).

Farm sector recorded a significant recovery compared to the previous year’s low growth. The improvement is primarily driven by favorable monsoon conditions, which boosted agricultural output. Enhanced livestock and fishery activities also contributed. The sector’s resilience is notable, as it supports rural economies and overall food security, despite challenges like fluctuating global commodity prices.

The growth trend also indicates better crop yields and government support through schemes like minimum support prices (MSP) and rural infrastructure investments.

Mining and Quarrying

Growth Rate: 4.2% in FY25 (down from 7.1% in FY24).

Mining sector experienced a notable slowdown, reflecting reduced demand for minerals and challenges in global commodity markets. Domestic factors like regulatory constraints and environmental clearances may have also impacted mining activities.

The decline suggests a moderation in industrial demand for raw materials, potentially linked to slower manufacturing growth and global economic uncertainties.

Manufacturing

Growth Rate: 5.0% in FY25 (down from 9.9% in FY24).

Manufacturing growth decelerated significantly, driven by weaker domestic and export demand, high input costs, and supply chain disruptions. The sector faced challenges from elevated interest rates and stricter lending norms, which constrained industrial expansion.

However, despite the slowdown, manufacturing showed some recovery in Q4 FY25, contributing to the overall GDP growth of 7.4% for that quarter. Government initiatives like "Make in India" and production-linked incentives (PLI) continue to support the sector, but external pressures limited growth.

Electricity, Gas, Water Supply, and Other Utility Services

Growth Rate: 7.5% in FY25 (down from 7.8% in FY24).

The utilities sector maintained relatively strong growth, though slightly lower than the previous year. Steady demand for electricity, driven by industrial and domestic consumption, and investments in renewable energy supported this performance. Water supply and utility services also contributed positively.

The marginal decline reflects stable but not exceptional growth, with ongoing infrastructure investments in clean energy and utilities providing a foundation for resilience.

Construction

Growth Rate: 9.4% in FY25 (down from 10.4% in FY24).

Construction remained a robust performer, driven by government-led infrastructure projects, urban development, and real estate demand. The slight slowdown from FY24 is attributed to reduced government capital expenditure compared to the previous year’s high base.

The sector’s strong growth underscores its role as a key driver of economic activity, supported by initiatives like the National Infrastructure Pipeline and housing schemes.

Trade, Hotels, Transport, Communication, and Broadcasting

Growth Rate: 6.1% in FY25 (down from 7.5% in FY24).

This sector saw a moderation in growth due to weaker performance in trade and hospitality, impacted by reduced consumer spending in certain segments and global trade slowdowns. Transport and communication services, however, benefited from digital infrastructure investments and logistics improvements.

The decline reflects challenges in discretionary spending, though digital services and logistics provided some cushion.

Financial, Real Estate, and Professional Services

Growth Rate: 7.3% in FY25 (down from 8.4% in FY24).

This part of the services sector maintained solid growth, driven by financial services (banking, insurance) and real estate, supported by urban demand and digital financial inclusion. Professional services, including IT and consulting, continued to perform well, though export-oriented IT services faced global headwinds.

The slight decline from 8.4% to 7.3% reflects global economic uncertainties affecting IT exports, but domestic financial services remained a strong contributor.

Public Administration, Defense, and Other Services

Growth Rate: 7.8% in FY25 (down from 7.9% in FY24).

This public services sector showed steady growth, driven by government spending on public administration, defense, and social services. The marginal decline reflects a normalization from FY24’s high growth, with fiscal constraints limiting expenditure growth.

The sector’s consistent performance (7.8%) highlights the prominent role of government spending in stabilizing economic growth, particularly in Q4 FY25.

More on Growth trends tomorrow.

Recently the Ministry of Statistics and Program Implementation, Government of India, released the results of the latest Annual Survey of Industries (ASI) for the reference period FY23. The Annual Survey of Industries is conducted with the primary objective to provide a meaningful insight into the dynamics of change in the composition, growth and structure of various manufacturing industries in terms of output, value added, employment, capital formation and a host of other parameters.

I note the following key points from the survey results.

Key statistics (five-year period from FY19 to FY23)

·         Number of total factories in the country has grown at a CAGR of 1.2%, despite the government’s strong emphasis on manufacturing and multiple incentives.

·         Total fixed capital (investment) employed in manufacturing has recorded a growth of 4.4% CAGR. Total invested capital has grown at a CAGR of 6.5% during this period, implying higher working capital requirement.

·         Total employment in the manufacturing sector has grown at a CAGR of 3.2%. This is sharply lower than the rise in the labor force.

·         Total factory output has risen at a CAGR of 11.8%, while output per worker recorded a growth of 4.8% CAGR.

·         Average industrial wage has grown at a CAGR of 5.1% against the average CPI inflation of 6.6%, implying sharp deceleration in the real wages.

·         The ratio of contract workers to the total workers has increased from 38% (FY19) to 41% (FY23).

·         Manufacturing productivity has shown some improvement, but this may be far below the desired levels. Fixed capital to output ratio has improved from 37% to 28%. GVA to fixed capital ratio improved from 44% to 53%. Wage cost to NVA improved from 36% to 34%.

Stark regional imbalances

Five states account for more than 52% of factories in the country. The nature of activities, productivity and employment level of the industry in these states also appear to be different.

·         Tamil Nadu accounts for 15.7% factories, deploying 7.9% of the total fixed capital, employs 15% of the total industrial workers and produces only 10.3% of GVA - implying more proportion of labor-intensive small industries.

·         Gujarat accounts for 12.2% factories, deploying 19.7% of the total fixed capital, employs 12% of the total industrial workers and produces 14.8% of GVA - implying dominance of heavy capital-intensive industries.

·         Amongst the top five industrial states, Uttar Pradesh is the least productive. The most populous state in the country accounts for only 7.5% of total factories, employs 8% of the total industrial worker and contributes just 6% of GVA.

Food business getting more organized

Factories producing food products, 16% of the total number of factories, are now the largest category of industrial units in the country. These factories employ 21,16,000 or 11.4% of the total industrial workers, more than any other industry. The traditional largest employer, textile industry, comes a distant second employing 17,23,000 workers.

Food products industry now contributes 7.1% of the manufacturing GVA, 73% more than the 4.1% contribution of the textile industry.

…but basic metal continues to dominate

Basic metals’ industry employs 17.6% of the total fixed capital, and contributes 11.6% of the GVA. The employment intensity of the Basic metal industry is low as it employs only 7.6% of the industrial workers.

 FY24 Real GDP growth surpassed all estimates, even the most optimistic once, by a wide margin – growing 8.2% in FY24. The forecasts for FY25 have been upgraded sharply higher. Now most professional forecasters are projecting FY25e GDP growth to be in the 6.7-7.2% range.

FY24 Real GDP growth has been led by investments (+9%). Consumption growth, both public (+2.5%) and private (+4%), continues to remain poor. The share of private consumption fell to 55.8%, lowest in decades. Exports (+2.6%) growth was also one of the lowest in a decade (excluding Covid affected FY20 and FY21).

On the supply side, FY24 witnessed one of the worst agricultural GVA growth (+1.4%) in a decade; whereas Industrial growth (+9.5%) led by manufacturing and construction, was extremely strong. Services growth slowed down to 7.6% from 10% in FY23.

In 4QFY24, the surprise came largely from exports (+8.1%). Government consumption (+0.9%) completely collapsed due to election related restrictions.

On the supply side, agriculture GVA (+0.6%) and Services GVA (6.7%) growth was below par. Industry GVA growth (8.4%) did much better. However, adjusted for base effect (4QFY23 Agricultural GVA growth 7.6% and Industrial GVA Growth 3.4%) things look better.

FY24 Nominal GDP growth came at 9.6% (FY23 14.2%). Nominal GDP (GDP at Current Prices) is estimated at ₹295.36 trillion, against ₹269.50 trillion in FY23.

Fiscal Balance: Given the higher nominal GDP than previous estimates and better tax collections, FY24RE for Fiscal deficit has been revised downward to 5.6% from previous estimate of 5.8%. In addition, Rs2.1 trillion transfer from the RBI has also helped the fiscal balance materially. It is, therefore, likely that FY25BE for fiscal deficit would also be revised lower from 5.1% presented in the interim budget.

A favorable fiscal balance, favorable monsoon, and visibility of tax buoyancy shall afford greater fiscal leverage to govt for capex and social programs.