Growth seen holding up as March quarter zips at 7.4%

Conditions are in place for “a low-inflation, steady growth environment backed by monetary policy and fiscal stability," Nageswaran told reporters, referring to early indications of growth in the current financial year, after the statistics ministry released the quarterly estimate for March and the provisional FY25 figures of 6.5%, first made in the advance projection in February.

To be sure, both March quarter and FY25 figures were lower than 8.4% in Q4 of FY24 and 9.2% (revised) in full FY24. A Mint poll of 22 economists had said GDP growth may rise to a four-quarter high of 6.9% in the March quarter.

Also read: Government drove capex in pre-election year as private sector held back

Nageswaran said India's steady, low-inflation growth condition is also leading to a record tightening of India's 10-year bond yield vis-a-vis the US 10-year treasury note yield. This implies improving investor perception about the soundness of India’s economy and reduced perceived risks in spite of India being a developing market.

'Holding up'

After covid, in spite of the rising uncertainties due to geopolitical conflicts and trade tensions, India is actually holding up its growth numbers better than many advanced economies, Nageswaran pointed out. His confidence in robust economic growth this year stems from signals like sustained improvement in manufacturing and services output in April indicated by purchase manager’s indices, year-on-year growth in e-way bill generation in April, average hotel occupancy rate in April remaining slightly better than that in March 2025 and improved port cargo activity in the month compared to the previous month.

“So clearly, the momentum of the economy which picked up in the fourth quarter (of FY25) is continuing into the first quarter (of FY26) and that's a good sign," said Nageswaran.

March quarter growth was powered by key sectors including agriculture, manufacturing, construction, mining and services, all of which showed higher output during FY25, compared to FY24.

Patchy recovery

Kotak Mahindra Bank chief economist Upasna Bhardwaj noted that the Q4 numbers were slightly above expectations, and broadly aligned with the government’s estimate, while GVA growth remained subdued at 6.8% due to a sharp rise in net indirect taxes. She pointed out that high-frequency indicators reflect a patchy recovery, with sequential momentum slowing from the previous quarter.

The government's final consumption expenditure, representing its expenditure on goods and services, stood at  ₹33.03 trillion during FY25, up 6.4% on an annual basis. Household consumption or private final consumption expenditure saw a 12% growth to ₹202.98 trillion in FY25.

Gross fixed capital formation, an indicator of investment, rose by about 7.9% on an annual basis in FY25, to ₹98.86 trillion, higher than the ₹91.65 trillion reported in the previous year.

Throughout FY25, the gross value added (GVA)—which measures the value of goods and services produced in the economy—rose 6.4%, down from the 8.6% annual growth registered in the previous year, to ₹171.87 trillion. In the four quarters of FY25, GVA rose by 6.5%, 5.8%, 6.5% and 6.8%.

Benign inflation, soft growth

“We expect the benign inflation and soft growth to continue to provide the MPC room for incremental monetary easing, with 25 bps (basis point) cut in the upcoming June policy," Bhardwaj added.

Also read: Industrial output moderates to 2.7% in April, slowest in eight months

A key highlight of the FY25 data is a slight improvement in exports this year, while a reduction in imports, helped reduce the shock on account of negative net exports. Exports grew at 6.3% in rupee terms this fiscal from the year-ago period to ₹40.68 trillion, while imports contracted by 3.7% annually to ₹42.29 trillion.

Tariff impact

To a question on potential impact on the June quarter of this year on account of the reciprocal tariffs that the US announced in April, Nageswaran explained that it will be too noisy to make a quarterly breakdown of forecasts at this point in time.

“But to say that trade uncertainty will cast a shadow is not necessarily correct because trade restrictions have been there and the 6.5% average growth expectation is a recognition of the fact that external sector contribution will be opportunistic, not necessarily something we can take for granted in the current environment," Nageswaran explained.

Rishi Shah, partner and economics advisory lead at Grant Thornton Bharat LLP, said India’s 6.5% real GDP growth in FY25, though lower than the previous year’s 9.2%, reflects structural resilience amid global volatility. He noted that a rebound in private consumption to 7.2% and steady investment growth at 7.1% underscore strong domestic demand, even as external headwinds persist. Household consumption rose from 5.6% to 7.2%, while government spending decelerated sharply to 2.3% from 8.1%, indicating a shift toward fiscal prudence.

“This rebalancing—where private demand compensates for restrained public spending—suggests the economy's organic recovery mechanisms may be taking hold," he said.

“Looking ahead, India appears poised for a 6–7% growth despite a slowing global economy. However, sustaining growth above 7% will require navigating the treacherous waters of supply chain fragmentation while ensuring our manufacturing ambitions don't fall victim to the same protectionist currents reshaping global trade," he added.

Roadmap

The fiscal roadmap for FY26 balances consolidation with growth, leveraging strong non-tax revenues to maintain fiscal discipline without resorting to sharp spending cuts, thereby preserving growth momentum amid global volatility, said a senior government official, who spoke under the condition of anonymity.

“The fiscal discipline will be maintained even in a volatile global environment," the person added.

In a presentation, Nageswaran pointed out that the Centre retains its outlook on FY26 growth at 6.3-6.8%, made in the Economic Survey 2024-25. Demand for goods and services, especially the rebound in rural areas, and resilient services exports are key drivers of this growth, the presentation said, adding that multiple agencies have projected India’s growth to be in the range of 6.3 – 6.7% this fiscal.

“We anticipate that consumption will remain robust in the current fiscal year, buoyed by favorable domestic factors such as normal monsoon patterns, the transmission of interest rate cuts by the Reserve Bank of India (RBI), and middle-class income tax benefits," said Dharmakirti Joshi, chief economist, Crisil. “Net-net we expect India’s GDP grow at 6.5% in fiscal 2026 with risks tilted downwards," he added.

Benign food prices

Nageswaran said every indication is that there are adequate food inventories and that benign food price will continue. Also, declining crude oil prices will potentially lower import bills, creating fiscal space and alleviate external economic pressures, Nageswaran’s presentation said.

The presentation stressed that robust domestic demand supported India’s economic growth and that the share of private final consumption expenditure (PFCF) in GDP had risen to the highest level since FY04 at 61.4% in FY25. PFCF is the biggest driver of the Indian economy.

Ranen Banerjee, partner and leader, economic advisory, PwC India said private consumption should fare better in FY26 with the tax concessions to salaried households announced in the budget.

Also read: Wholesale inflation eases to 13-month low of 0.85% in April as food, fuel prices soften

Meanwhile, India’s GDP growth in FY26 is expected to remain steady at 6.5%, as projected by the Reserve Bank of India (RBI) recently, with the outlook described as ‘evenly balanced’ despite global uncertainties.

While the economy is unlikely to be significantly impacted by the US’s reciprocal tariffs, with a trade deal anticipated soon to ease tensions, regional geopolitical issues, including friction with Pakistan, are not expected to derail growth, supported by resilient domestic demand and a stable policy environment.

Experts said a normal monsoon, strong government capex, robust investment demand, and positive consumer and business sentiment support India’s FY26 growth outlook, though geopolitical tensions and diverging global monetary policies add uncertainty.

Manufacturing

Manufacturing output grew at 4.5% to ₹29.54 trillion in FY25, although it comes on a higher base, with FY24 manufacturing output growing at 12.3%.

Interestingly, production in agriculture forestry, livestock, and fishing faced less severe shock due to good monsoons with output growing at 4.6% to ₹24.77 trillion in FY25 on account of good monsoons, higher than the 2.7% growth projected in the previous year.

The output of mining and construction sectors grew 2.7%, and 9.4%, to ₹3.39 trillion and ₹15.72 trillion respectively, during FY25, after registering 3.2% and 10.4% growth in the previous year.

The slowdown in construction growth was largely due to delays in state-backed projects during the general elections in the last fiscal.

Rumki Majumdar, economist at Deloitte India, said agriculture was a standout performer in FY25, growing at 4.6% compared to 2.7% the previous year. With timely monsoons and easing food inflation, rural households are likely to see improved purchasing power, reinforcing already strong rural consumption trends—especially evident in FMCG sector growth.

This momentum is expected to support overall domestic demand.

“Private investments have seen a huge jump this quarter, which is good news. India’s private sector’s investment appetite has been low since the beginning of 2024, and the government has been shouldering the investment burden since the pandemic," she said.

“However, we must watch out for this trend going forward as several global uncertainties weigh on investment sentiments," she added.

Global perspective

India’s relatively high growth figures come at a time when major global economies are facing slowing growth amid steep interest rates. The International Monetary Fund (IMF) has lowered its 2025 growth forecasts for the US to 1.8%, the Eurozone to 0.8%, and China to 4%, citing higher tariffs and rising economic uncertainty. The downgrades signal weakening global growth prospects.

The IMF projects India’s economy to grow 6.2% in FY25 and 6.3% in FY26, making it the fastest-growing major economy. Growth is largely driven by strong private consumption, especially in rural areas, the agency said.

IMF reports India’s GDP growth on a fiscal year basis, unlike most other countries, which are assessed on a calendar year basis. The IMF also expects India to surpass Japan and become the world’s fourth-largest economy in 2025.