The Indian economy grew by 6.5% during the financial year 2024-25, beating most predictions. In the last quarter (January to March), the growth was even higher at 7.4%, making India the fastest growing economy in the world.
According to the National Statistical Office (NSO), India’s total economy size, or GDP, is now estimated to be $3.9 trillion, up from $3.6 trillion the previous year. The International Monetary Fund (IMF) expects India to become the fourth largest economy in the world by 2025-26, with a GDP of about $4.3 trillion.
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Finance Minister Nirmala Sitharaman said this is the fourth year in a row that India has been the fastest growing economy. She highlighted that manufacturing, services, and agriculture all contributed to this growth, and a good monsoon season will help keep this positive trend going.
However, the growth has slowed compared to the previous year’s 9.2% growth. That high number was mainly because of the economy bouncing back after the COVID-19 pandemic. Also, private investment, which is important to keep growth above 7%, is still not very strong.
Most experts had predicted lower growth rates: about 6.3% for the year and 6.8% for the last quarter. The actual numbers were higher than these estimates.
One reason for the difference is that the GDP number (7.4% growth in the last quarter) includes taxes and subsidies, while the Gross Value Added (GVA) growth (which excludes these) was lower at 6.8%. A big drop in government subsidies helped push the GDP number higher.
J.P. Morgan’s Chief India Economist Sajjid Chinoy said this difference should be understood carefully because the fall in subsidies was a big factor.
The government also reduced its fiscal deficit (the gap between spending and income) from 5.6% in 2023-24 to 4.8% in 2024-25. It is expected to come down further to 4.4% next year.
Looking deeper, private spending by people is driving most of the growth now. Government spending and investment in infrastructure have slowed down. Private consumption grew 7.2%, while government spending grew only 2.3%.
Crisil’s Chief Economist Dharmakirti Joshi said rural demand is strong due to good agricultural growth and expects consumption to stay strong because of good monsoon, interest rate cuts by the Reserve Bank of India, and tax benefits for the middle class.
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At the sector level, agriculture grew well at 4.6%, but manufacturing slowed down a lot from 12.3% to 4.5%. This slowdown partly reflects how inflation affects the calculation. Services grew at 7.2%, down from 9% last year, with some private service sectors slowing down, while government services saw a small increase.
The Reserve Bank of India’s Monetary Policy Committee expects the economy to grow by 6.5% in 2025-26, slightly lower than before because of global economic risks.
India’s Chief Economic Advisor V Anantha Nageswaran said the government expects growth between 6.3% and 6.8% next year, with private consumption and exports helping to keep the economy strong. However, global growth is likely to slow down in 2025 and 2026 due to worldwide uncertainties.
