Behind strong Q4 GDP growth is only mild uptick in economic activity
India’s GDP beat market estimates by 50 basis points, but this may not be an ideal indicator of economic growth during the quarter. Mint breaks down the GDP figures
At 7.4%, GDP growth in the quarter ended March exceeded expectations by a decent margin, but economic activity has seen only a marginal uptick during the period. The reason: the statistical effect played by the government's subsidy outgo, which implies a much slower growth of 6.8% in Q4 in actual gross value added (GVA).
GVA is a better measure of economic activity. GDP is calculated by adding net taxes earned by the government (taxes minus subsidies) to the GVA. That means a decline in subsidies can increase the GDP relative to the GVA. This is what happened in Q4.
While GDP growth has exceeded market expectations (Mint poll: 6.9%), it has received a push from lower subsidy transfers compared to last year. This is not the first time this trend has emerged. In fact, for most of FY24, lower year-on-year subsidies had kept GDP growth above GVA growth.
In January-March 2025, the government’s major subsidies had declined 40.7% compared to the same period the previous year. This decline would have pushed GDP growth up during the quarter.
In such cases, economists have said GVA growth is a better indicator to gauge the momentum in the economy. So, what does the GVA growth show? GVA growth was 6.5% in Q1, 5.8% in Q2, and 6.5% in Q3, and 6.8% in Q4. This certainly means that economic activity has been the strongest in a year, but only mildly better than the previous quarter.
“The high net indirect tax growth has led to the wide gap between the two. The high-frequency data in the last few months continues to point towards a patchy recovery, with the sequential momentum suggesting moderation compared to the previous quarter," said Upasana Bharadwaj, chief economist at Kotak Mahindra Bank.
While Q4 GDP has come in higher than market expectations, it is slightly lower than the 7.6% implied in the second advanced estimate by the National Statistics Office (NSO) in February. However, the full-year figure has come in line with the earlier official estimate of 6.5%, thanks to an upward revision in third-quarter GDP. In February, GDP growth for Q3 was estimated at 6.2%, which has now been revised upwards to 6.4%.
With an upward revision in the pace of Q3 GDP expansion, led by agriculture, the full year GDP growth printed in line with the second advance estimate of 6.5%," said Icra chief economist Aditi Nayar.
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