India’s Robust GDP Growth in FY25: A Domestic Demand-Driven Success Story


India’s Economic Growth Surges in Q4 FY25

India’s economy continues to assert its strength on the global stage. The latest GDP numbers indicate that the Indian economy grew by 7.4% in Q4 of FY25, a sharp increase from the 6.2% growth in Q3, and higher than the Reserve Bank of India’s (RBI) projection of 7.2% for the same period. For the full fiscal year 2024-25 (FY25), India’s economy registered a 6.5% growth, in line with estimates and maintaining its position as the world’s fastest-growing major economy.

Key Drivers of Growth: Domestic Consumption & Government Investment

Economists attribute this robust growth to strong domestic consumption, sustained government capital investment, and a relatively low dependence on exports. According to Manoranjan Sharma, Chief Economist at Infomerics Valuation and Rating, this growth reinforces India’s economic resilience and its consistent lead among global peers.

Rural Recovery and Sectoral Expansion

Anshuman Magazine, Chairman and CEO at CBRE India, highlighted that rural market recovery, strong domestic demand, and growth in the industrial and construction sectors have significantly contributed to the economic momentum. The real estate sector particularly benefitted, with increased investments and improved homebuyer confidence, fueled by growth in financial services and construction activities.


Capital Formation and Investment Outlook

Ranen Banerjee, Partner at PwC India, noted an 8.8% rise in Gross Fixed Capital Formation (GFCF), possibly due to increasing private capital expenditure. However, government capital expenditure did not see a significant uptick compared to the previous fiscal year. He flagged concerns about weak manufacturing growth, which could be aggravated in FY26 due to anticipated global trade disruptions and economic slowdown.

Madhavi Arora, Chief Economist at Emkay Global, added that Q4’s performance partially reflects back-loaded government expenditure, primarily through public capital projects. While capital formation remained stable, concerns persist for FY26 due to global uncertainties, potential declines in urban consumption, and fragile investment sentiments.

Comparison with Asian & Neighboring Economies

India’s 6.5% FY25 growth places it significantly ahead of many neighboring and Asian economies:

  • China, while recovering from post-pandemic slowdowns, recorded approximately 5.3% growth in 2024. Its economy remains constrained by weak domestic demand and a struggling property sector.

  • Bangladesh witnessed a slowdown, registering around 5.6% GDP growth due to import restrictions and a weakening currency.

  • Pakistan faced macroeconomic turbulence and political uncertainty, with FY25 growth estimated at just 2-3%, accompanied by high inflation and debt servicing pressure.

  • Sri Lanka showed signs of recovery after a severe economic crisis, with growth stabilizing at around 1.5–2%, driven by tourism and remittances.

  • Vietnam remained a regional outperformer with GDP growth near 5.8%, driven by manufacturing exports and a resilient labor market.

  • Indonesia posted 5.1% growth, supported by commodity exports, although facing headwinds from reduced global demand.

India’s performance clearly outshines most of the region, reinforcing its domestic demand-driven model as a more stable growth engine amid global uncertainties.

Outlook for FY26: Optimism with Caution

While the RBI has projected 6.5% GDP growth for FY26, economists warn of headwinds including global trade pressures, geopolitical tensions, and inflationary concerns. To maintain momentum, experts suggest India should focus on:

  • Enhancing private consumption

  • Diversifying manufacturing and exports

  • Strengthening investment climate

  • Boosting urban income and employment

Conclusion

India's economic performance in FY25 has been a standout success, largely driven by domestic resilience and strategic public investment. As the country prepares for FY26, maintaining momentum in private investment, managing external shocks, and fostering inclusive consumption will be key to sustaining its leading position in Asia and beyond.


Location: Pune, Maharashtra, India

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