India's FY25 growth holds firm, driven by construction and consumption; FY26 outlook steady

India's growth rate has been easing from the FY22 high to a projected 6.5% in FY25, but the overall GDP size continues to expand steadily. In the fourth quarter of FY25, India’s GDP rose 7.4% year-on-year, beating economists' estimates and surpassing the 6.8% real GVA growth, buoyed by net indirect taxes.

Growth in the March quarter was driven by a robust 7.3% expansion in services and a sharp rebound in industrial activity, especially construction, which surged 10.8%. Agriculture grew 5.4%. Additionally, third-quarter GDP growth was revised upward to 6.4%, underscoring the economy’s resilience.

Real GDP in the fourth quarter of FY25 rose to ₹51.35 lakh crore while the nominal GDP increased to ₹88.18 lakh crore. For the full year, the real GDP reached ₹187.97 lakh crore while the nominal GDP rose to ₹330.68 lakh. The real GVA in the fourth quarter grew 6.8% to ₹45.76 lakh crore and reached ₹171.87 lakh crore in FY25, up 6.4% from ₹161.51 lakh crore in FY24.

Since the Covid-19 contraction of 5.8%, the Indian economy has consistently grown over 6%. After a record 9.7% growth in FY22, thanks to a low base in the previous year, GDP grew 7.6% in FY23. FY24's first revised estimate pegs growth at 9.2%, with FY25 projected at 6.5%. These trends suggest a soft landing post-pandemic.

Dharmakirti Joshi, Chief Economist at Crisil , said consumption in the fourth quarter outpaced GDP growth, supported by strong rural demand and agriculture. "A sharp rebound in investment also pushed annual investment growth above GDP growth."

Aditi Nayar, Chief Economist at ICRA, said fourth quarter GDP exceeded their above-consensus forecast of 6.9%. She credited the uptick to gross fixed capital formation and reduced drag from net exports, helped by a boost in services exports. "Manufacturing, construction, financial and real estate services, and public administration showed stronger growth than expected," she said. However, private consumption growth remained uneven, and government spending contracted after two quarters, Nayar added. 

Aditi Gupta, Economist at Bank of Baroda , said the steady GDP rise aligns with India’s growing focus on investments and exports. "This is a positive shift for an economy historically driven by consumption. Government schemes like PLI have ushered in structural reforms and a stable growth cycle." On fourth-quarter growth, Gupta noted quicker expansion in manufacturing and construction, and steady services growth.

Anitha Rangan, Economist at Equirus Securities, said the slight dip in nominal GDP growth to 9.8% from 9.9% was surprising. "While consumption has improved, moderating capital spending reflects weaker net savings. Manufacturing remains a drag at 4.5% growth, while agriculture and construction showed meaningful recovery."  Kotak Mahindra Bank's Chief Economist, Upasna Bhardwaj, said the GVA estimate of 6.8% reflects a patchy recovery, with sequential momentum moderating.

GDP data reinforces India’s economic position

PHDCCI said the GDP data reinforces India's position as a fast-growing major economy. Its president, Hemant Jain, highlighted a 5.5% increase in real per capita GDP in Q4 to ₹1.33 lakh, and a 5.4% rise in per capita gross national income to ₹1.31 lakh. "These gains suggest broad-based improvements in economic well-being," he said.

Sujan Hajra, Chief Economist at Anand Rathi Group, noted that India’s solid growth came despite global geopolitical tensions and trade uncertainties. "India continues to be the fastest-growing major economy," he said. 

Abhishek Bisen, Senior EVP & Head Fixed Income, Kotak Mutual AMC, however, feels India’s growth has outpaced major global economies but remains below potential. "To support growth, we expect the RBI to cut the repo rate for the third time in the June 2025 policy."

On the soft-landing of the economic growth in the past four years, Bisen attributed it to "slower growth in various components such as industry, services, trade, hotels, transport, communication, financials, real estate and professional services".

Further, he said the three years before FY25 benefitted on a lower base due to Covid-19 in FY21. "Pent-up demand also helped."

Construction grows 9.4% in FY25

Among sectors, construction led FY25 with 9.4% growth, followed by 8.9% in public administration and 7.2% in financial, real estate, and professional services. Anshuman Magazine, Chairman & CEO, CBRE India, SEA, MEA, said the growth reflects strong domestic demand, rural recovery, and an active industrial sector. "Construction and financial sector growth have strengthened the real estate market and homebuyer confidence," he said.

Manish Jaiswal, CEO of Eldeco, said the fourth quarter's 10.8% growth in construction and 7.8% rise in financial and real estate services reflect India’s economic momentum. "This is due to sustained infrastructure push, rising urban demand, and policy stability," he noted.

FY26 outlook remains strong

Economists project FY26 GDP growth in the 6.2–6.6% range, driven by robust consumption, normal monsoon, and interest rate cuts. Aditi Gupta of BoB expects 6.4-6.6% growth, citing favourable monsoon, demand recovery, and strong government capex. "Further, the impact of external headwinds has remained largely contained so far," says Gupta.

Despite global trade uncertainties, domestic growth drivers remain resilient. ICRA forecasts a slight dip to 6.2% in FY26, down from 6.5% in FY25. Crisil’s Joshi expects 6.5% growth in FY26 but sees downside risks due to weak corporate investment appetite and slower public spending