By- Arsh Mogre, Economist, PL Capital based on GDP data:
“India closed FY25 on a high note: real GDP in Q4 expanded 7.4 % y/y to ₹51.35 lakh crore, out-running the 6.7 % consensus and lifting full-year growth to 6.5 %—the fastest among large economies. The nominal print rose an even stronger 10.8 %, pinning the implicit deflator at roughly 3.2 %, half its pre-pandemic average and signalling that volume did the heavy lifting. Yet beneath the stellar top line, three forces shaped the quarter: a capex-centric demand mix, a construction-heavy supply response, and a tax-driven wedge between GDP and GVA.
On the demand side, gross fixed capital formation jumped 9.4 % y/y, contributing almost three percentage points to headline growth even though its share slipped to 33.9 % of GDP as import-intensive machinery orders cooled late in the quarter. Private consumption, by contrast, lost steam after the festive surge; seasonally adjusted estimates suggest a low-single-digit rise, consistent with softer urban discretionary outlays and a flat-to-negative real wage bill. Government final consumption actually contracted 0.3 % y/y, confirming that the fiscal impulse came almost entirely from back-loaded capital expenditure rather than revenue spending. Net exports flipped from a drag in Q3 to a 0.6-percentage-point boost as real imports fell 5 % while exports slipped only 1 %, and a 12.7 % leap in net indirect taxes added 60 bps to the GDP–GVA gap.
Supply-side data echo that narrative. Construction value added surged 10.8 %—its third consecutive double-digit quarter—thanks to a 33 % rise in highway awards and a 15 % jump in cement output, ing for 0.8 percentage point of the 6.8 % GVA print. Manufacturing grew 6.9 %, but gains were narrowly led by vehicles and capital goods, while low-margin segments such as textiles and basic chemicals stagnated, mirroring the divergent trend in corporate earnings. A primary-sector rebound to 5 % growth, from 0.8 % a year earlier, owed to a bumper rabi crop that lifted rural incomes ahead of the unusually early monsoon.
Services momentum moderated to 7.8 %; trade-hotel-transport activity normalised post-holiday, and financial-real-estate value added eased in line with lower market turnover.
Looking ahead, the runway for another year of 6.4–6.6 % growth hinges on three stress tests. First, the capex multiplier must survive fiscal fatigue: centre-state gross borrowing already approaches 10 % of GDP, and without a decisive private-sector hand-off the 3-ppt boost from investment will erode. Second, global “reciprocal” tariff escalation threatens India’s export elasticity just as world goods demand is crawling at 1 % y/y; historically, each 1-ppt hit to global trade trims domestic growth by about 25–30 bps. Third, consumption depends on weather: an early southwest monsoon typically adds 60 bps to rural spending over two quarters, enough to offset half the drag from softer urban demand, but rainfall volatility could just as easily reverse that lift. In sum, the headline surge confirms India’s short-cycle resilience; sustaining it into FY26 requires a smooth hand-over from public to private investment, a benign trade environment, and steady rural demand—all of which remain live variables at the turn of the fiscal year.”