India's FY25 GDP growth slows to 6.5%, ICRA projects 6.2% for FY26

The acceleration in gross domestic product (GDP) growth between the two quarters was notably sharper, rising to 7.4 per cent compared to 6.4 per cent previously.

However, on an annual basis, both GVA and GDP growth witnessed a notable slowdown in FY25, easing to 6.4 per cent and 6.5 per cent, respectively, from 8.6 per cent and 9.2 per cent in the previous fiscal—a decline of 215–270 basis points (bps), Investment Information and Credit Rating Agency (ICRA) said in a press release.

Although a growth uptick in Q4 FY25 compared to Q3 was expected, the magnitude of acceleration surpassed projections. The sharp 102 bps rise in GDP growth was primarily driven by net indirect taxes, likely influenced by irregular patterns in quarterly subsidy disbursements. As a result, the 7.4 per cent GDP growth figure for Q4 FY25 warrants cautious interpretation.

The modest 27 bps acceleration in the GVA growth print between these quarters was mainly led by the industrial sub-sectors, particularly manufacturing and construction, which also outperformed ICRA’s expectations.

On the expenditure side, gross fixed capital formation (GFCF) was the only major component to have witnessed an acceleration in Q4 FY25 compared to Q3, with the growth touching a six-quarter high of 9.4 per cent. This was supported by strong expansion in capex of both the centre and the state governments.

Moreover, net exports (in real terms) aided in bumping up the GDP numbers, amid an expansion in the surplus in Q4 compared to Q3, led by the sharp contraction in real imports during the quarter, added the release.

The growth in final consumption weakened between these quarters, led by a slowdown in private final consumption expenditure (PFCE) and a contraction in government final consumption expenditure (GFCE), with the latter charting an uneven trend through the fiscal.

The dip in the GVA growth print to a four-year low of 6.4 per cent in FY25 from 8.6 per cent in FY24 was broad-based, with all sub-sectors, barring agriculture and public administration, defence and other services segments, witnessing a slowdown between these years.

Notably, the growth in the manufacturing sector saw a significant deceleration to 4.5 per cent in FY25 from the striking 12.3 per cent in FY24, which had been boosted by a low base. On the expenditure side, the 270-bps dip in GDP growth in FY25 vis-a-vis FY24 was led by government consumption and investment activity, even as private final consumption expenditure (PFCE) growth accelerated to 7.2 per cent from 5.6 per cent, and a lower drag was witnessed on account of net exports (in real terms) between these years.

The over 7 per cent growth in PFCE during FY25 appears somewhat inconsistent with prevailing concerns about subdued urban consumption. Looking ahead, ICRA anticipates that global uncertainties may exert mild pressure on growth, although domestic fundamentals are expected to stay strong.

ALCHEMPro News Desk (SG)