Growth in charts: GDP-GVA divide, export silver lining, capex push

Growth gaps

India’s GDP growth, at 7.4% in January-March, exceeded market expectations of 6.9%. However, a slower rise in gross value added (GVA), at 6.8%, revealed a softer underlying momentum in economic activity. GDP is calculated by adding net taxes (taxes minus subsidies) to the GVA. Since the government subsidy payout was 40.9% lower year-on-year during the quarter, it gave a boost to GDP. Nevertheless, GVA growth was highest in one year in Q4, even as it had risen only 30 basis points from the previous quarter.

Also Read: Behind strong Q4 GDP growth is only mild uptick in economic activity

Headwinds ahead

GDP growth in FY25 was 6.5%, the lowest in four years, but in line with the second advance estimate given by the government in February, thanks to strong headline Q4 numbers as well as an upward revision in Q3 numbers from 6.2% to 6.4%. Going ahead, economists expect GDP growth to slow down further to 6.3% due to the disruption caused by the US’s tariff policies on trade and global growth. Uneven consumption growth, even as rural momentum has been strong, could also weigh on growth.

Silver lining

1,085%: That's the year-on-year rise in net exports during Q4. While external risks are likely in the coming months, Q4 showed a strong momentum in net exports (exports minus imports) of goods and services. This was mainly led by strong services exports, which rose 45% year-on-year in Q4. A sharp decline in the value of the rupee may have also played a role. According to Barclays, net exports contributed as much as 3.7 percentage points to Q4 GDP growth. Amid tariff uncertainties, services export growth could provide some cushion.

Also Read: Growth seen holding up as March quarter zips at 7.4% 

Broad-based uptick

Even as GVA growth was not as strong as GDP growth, the sector-wise breakup shows a broad-based pickup in economic activity. The quarter was led by construction, which recorded double-digit growth of 10.8% in Q4 from 7.9% in Q3. The services sector performed better than industry, with public administration (8.7%) and financial services (7.8%) recording strong growth. The momentum in agriculture also remained strong. While manufacturing growth picked up from Q3, it was among the laggards, along with mining.

Role reversal

The role of consumption and investment reversed in Q4. While gross fixed capital formation (investments) rose 9.4% in Q4 from 5.2% in the previous quarter, private final consumption expenditure (consumption) slowed to 6.0% from 8.4%. Investments tend to get a boost in the final quarter of the year, which may have reflected in the GDP numbers. A slowdown in consumption, on the other hand, underlines its uneven nature, with economists pointing out the weakness in urban consumption. Government final consumption expenditure was the weakest, declining 1.8% in Q4 as opposed to 9.3% growth in Q3.

Capex push

103%: That’s the percentage of capital expenditure undertaken by the government in FY25 against the revised aim. After a weak momentum in capital expenditure at the beginning of the year due to election, the government was expected to have modest capital expenditure. However, government finances data released on Friday showed that the government surpassed its revised estimates for the first time in three years. The capex overshot revised estimates by nearly 336 billion, supporting robust growth in investments and public administration, defence and others in Q4.

Discrepancy dynamics

Economists and analysts have often pointed out the large discrepancies in GDP data, which make initial estimates subject to large revisions. Discrepancies refer to the differences that arise due to using different methods to estimate GDP, such as production and expenditure approaches. 

While this is a persistent problem in GDP data, the issue is often more pronounced in initial estimates, which get corrected to some extent in subsequent revisions. In Q3 and Q4, discrepancies were ₹1.4 trillion and ₹1.6 trillion, respectively, suggesting the possibility of large revisions in data later.

Mixed signals

Entering into FY26, high-frequency indicators gave mixed signals in economic activity. Industrial growth, measured by the Index of Industrial Production (IIP), slowed down to 2.7% in April from 3.9% the previous month. While goods exports growth rose, services exports growth slowed down, with the latter facing a base effect. 

When it comes to government expenditure, capital expenditure remained strong, with a 61% year-on-year rise in April, though on the back of a low base, while subsidy payout reversed the contraction seen in March.