The economy will expand by 6.4%, according to the first preliminary estimates of national income released on Tuesday, also lowering growth prospects for fiscal 2026 and raising fresh concerns for policymakers who are in the middle of drafting proposals for the Union. Budget 2025-26.
While private consumption has seen a sharp rise and is estimated to grow by 7.3% this fiscal, challenges from private investment demand and subdued government spending are expected to continue in the remaining months of this fiscal year. Experts also flagged risks from global uncertainties extending into FY26.
According to estimates released by the Ministry of Statistics and Program Implementation, gross value added (GVA) grew by 6.4% in FY 2024-25 against a growth rate of 7.2% in FY 2023-24. Nominal GVA showed a growth rate of 9.3% in FY2024-25 compared to a growth rate of 8.5% in FY2023-24.
“The lower GDP growth in FY25 was a result of the cyclical slowdown in the Indian economy in the last three quarters. Besides, strong benchmark fundamental, general elections, weak private sector investment and monetary and fiscal tightening were some of the factors influencing growth,” said Paras Jasrai, chief economic analyst at India Ratings and Research.
While agriculture is forecast to grow by 3.8% this fiscal, mining and quarrying is forecast to grow by 2.9% and manufacturing by 5.3%. Among sectors, the fastest growth is estimated in public administration, defense and other sectors at 9.1% this fiscal year, followed by 8.6% in construction and 7.3% expansion in financial, real estate and professional services.
Private consumption grows, investment remains sluggish:
However, the 7.3% increase in private final consumption expenditure from 4% in FY24 is seen as a silver lining in the data, especially as rural consumption saw a rebound after good monsoons.
Dharmakirti Joshi, Chief Economist, Crisil said the expected decline in food inflation will support discretionary spending, especially among low-income households with a higher share of food in the consumption basket. However, he pointed out that the city's economy is facing the twin problems of high inflation and slowing credit growth.
However, private sector investment has remained sluggish despite various measures. Gross fixed capital formation is estimated to grow by 6.4% in FY25 from 9% in the previous fiscal year.
Growth prospects for FY26 are weak, additional measures need to be taken:
Most analysts expect growth to remain below 7% in FY26. “We forecast India's economy to expand by 6.7% in the base case next fiscal, supported by public infrastructure spending, lower oil prices, a normal monsoon and monetary easing. However, policymakers must remain vigilant in the face of escalating geopolitical and climate risks,” Joshi said.
Aditi Nayar, Chief Economist and Director, Research and Outreach, ICRA projected GDP growth in FY26 at 6.5% on the back of an expected increase in capital expenditure in the upcoming budget. “In our view, GDP growth in FY26 will be fundamentally affected by both global and domestic uncertainties, amid significant benchmarking effects,” she noted.
She also noted that while the implied MOSPI H2 FY2025 projections look reasonable, some of the sector numbers could show higher growth in 2H FY2025. For example, growth rates in the mining, manufacturing and trade, hotels and transportation segments are likely to exceed forecast rates, given the dispersal of the adverse impact of excessive rains that affected growth in Q2 FY25, an expected pick-up in rural demand, and a favorable base effect in some segments. “Similarly, on the expenditure side, gross fixed capital growth is likely to turn out to be higher than the NBU's implied estimate of 6.4% for 2H2025, amid expectations of an increase in government capital spending and some improvement in private investment spending, which has been unfavorably affected by the 1H2025 election,” she said.
Experts also called on the government to continue measures to maintain growth momentum.
DK Srivastava, Senior Policy Advisor, EY India said the government would do well to continue to emphasize infrastructure expansion as the core of its growth strategy in the presence of persistent global uncertainties.
Suman Chowdhury, chief economist and managing director of Acuité Ratings & Research, said the key to growth of more than 7% over the medium term will be a sustained recovery in domestic demand.
