India’s economy surged ahead in the final quarter of the 2024-25 fiscal year, expanding by an impressive 7.4% compared to the same period last year. This growth rate exceeded analysts’ expectations, which had predicted a 6.7% rise, and marked the fastest quarterly expansion within the fiscal year.
The growth was largely propelled by robust activity in the manufacturing and construction sectors, alongside a notable increase in tax revenues and a decrease in government subsidy spending during the quarter. When looking at Gross Value Added (GVA), which excludes indirect taxes and subsidies to provide a clearer picture of economic output, growth accelerated to 6.8%, up from 6.5% in the previous quarter.
Private consumption, a key driver accounting for over half of India’s GDP, grew by 6% year-on-year in the first quarter of 2025. This was supported particularly by rising demand in rural areas for durable goods and agricultural equipment, such as tractors.
Urban consumption, however, remained relatively subdued, indicating a mixed pattern in domestic spending. For the entire fiscal year, India’s economy expanded by 6.5%, maintaining its status as one of the fastest-growing major economies worldwide, despite a slowdown from the 9.2% growth recorded in 2023-24.
India’s economy has been somewhat insulated from global trade disruptions due to its relatively low dependence on exports. This has helped mitigate the impact of the United States’ recent protectionist measures, including the imposition of “reciprocal” tariffs on Indian imports. Initially set at 26%, these tariffs were reduced to 10% for a 90-day period to facilitate ongoing trade negotiations. India’s trade surplus with the U.S. reached nearly $46 billion in 2024, showing the importance of bilateral trade relations.
Monetary policy has played an important role in underpinning economic growth. The Reserve Bank of India (RBI) has adopted a more accommodative approach, cutting interest rates twice in recent months to 6%, with further reductions anticipated.
However, geopolitical tensions, particularly between India and Pakistan over the Kashmir region, continue to pose risks. The ceasefire remains fragile, and renewed conflict could undermine investor confidence and dampen consumption, potentially slowing economic momentum.
Despite these challenges, India’s long-term growth prospects remain strong. Rural consumption, which accounts for a substantial share of overall consumer spending, continues to improve. The International Monetary Fund projects India’s economy will reach $4.187 trillion in 2025, surpassing Japan’s $4.186 trillion and positioning India as the world’s fourth-largest economy.