India's GDP Grows at 4-Year-Low of 6.5% in FY25, Q4 Expansion at 7.4%

India's gross domestic product (GDP) hits a four year low of 6.5% in the fiscal year 2024-25, marking a significant drop from 9.2% growth during FY24. According to Data released by the Ministry of Statistics & Programme Implementation (MoSPI) on Friday, growth during the last quarter of FY25 stood at 7.4%, down from 8.4% in the same period last year.

"Real GDP or GDP at Constant Prices is estimated to attain a level of Rs 187.97 lakh crore in FY 2024-25, against the First Revised Estimates (FRE) of GDP for the FY 2023-24 of Rs 176.51 lakh crore, registering a growth rate of 6.5%," said MoSPI in a statement.

Sakshi Gupta, Principal Economist at HDFC Bank, points out that higher-than-expected Q4 numbers indicate recovery from the slowdown seen in the middle of last year. "The Q4 growth was led by healthy agriculture performance, a sharp pick up in construction activity and continued steady performance in the services sector. On the other hand, while manufacturing activity showed some recovery, it still continued to remain fairly moderate," she adds.

On the other hand, Real Gross Value Added (GVA) is estimated at Rs 171.87 lakh crore in the FY25, against the First Revised Estimates (FRE) for the FY24 of Rs 161.51 lakh crore, registering a growth rate of 6.4%.

ICRA's Chief Economist Aditi Nayar says that Q4 growth was higher than real GVA growth, boosted by net indirect taxes. "In terms of the expenditure aggregates, the sequential uptick in GDP growth in Q4 FY2025 was led by gross fixed capital formation and lower drag from net exports, with services exports having accelerated appreciably in that quarter. However, private consumption growth eased, and likely remained uneven, while government final consumption expenditure contracted in Q4 FY2025, after a gap of two quarters," she notes.

In FY25, the Indian economy in June, September and December quarters grew at 6.5%, 5.6% and 6.2% respectively.

Sectoral Performance

The construction sector emerged as a significant contributor, registering a 9.4% growth over the fiscal year and an impressive 10.8% in the fourth quarter. Public administration, defence and other services grew by 8.9% annually, while financial, real estate, and professional services expanded by 7.2%.

The primary sector, encompassing agriculture, forestry, fishing and mining, recorded a 4.4% growth, a notable improvement from the previous year's 2.7%. In the fourth quarter, this sector grew by 5.0%, up from 0.8% in the same period last year.

Private Final Consumption Expenditure (PFCE) has reported 7.2% growth rate during FY 2024-25 as compared to 5.6% growth rate in the previous financial year.

"Alongside we observe that GCF/GDP moderates to 32.9% from 33.4%. While consumption has improved, moderating capital spending is also a reflection of moderation in net savings," observes Anitha Rangan, Economist, at Equirus Securities.

She also notes that while savings to GDP has remained unchanged in FY24 at 30.7% versus FY23, with HH savings moderating from 18.6% to 18.1% in FY24 (with increase in net liabilities), prospectively there is no meaningful improvement in FY25. "Prospectively with HH liabilities moderating, net savings should see an improvement," Rangan adds further.

Impact on Rate Cut

Gupta of HDFC Bank says that the latest GDP print does little to change their view of the RBI policy next week where the central bank is expected to cut the policy rate by 25bps. Given global headwinds, she expects that the central bank will remain growth supportive.

"The nominal GDP growth of 9.8% against a real growth of 6.5% implies a GDP deflator of around 3.3%, meaning our inflation is range-bound. This growth number, with the current background of low inflation, creates some monetary space. We continue to expect the RBI to deliver two more 25 bps rate cuts this year, in June and Aug,” says Sankar Chakraborti, MD and CEO at Acuité Ratings and Research.