India’s FY25 economic growth: 6.7% GDP rise driven by 7.5% investment surge and broad-based sector expansion

India’s economic momentum continued to flourish in FY25, showcasing resilience and broad-based growth across sectors. After a cumulative real GDP growth of around 27% since FY21, the nation has not only recovered from the pandemic’s economic disruption but also achieved significant structural improvements in many productive areas by the close of FY24. The foundation laid during these years is now enabling India to maintain a strong economic trajectory, with the GDP at constant prices growing by 6.7% in Q1 FY25.

All major non-agricultural sectors reported growth rates exceeding 5%, signaling a broad-based economic expansion. This growth pattern underlines India’s increasing capacity in sectors like manufacturing, services, and infrastructure. Alongside these sectors, advancing monsoon conditions have spurred kharif sowing, which has improved the outlook for agricultural production, adding a further boost to the economy.

Reflecting the vibrant economic activity, the major components of aggregate demand—including private consumption, fixed investment, and exports—have all gained momentum. Despite government expenditure increasing slowly, owing to the general elections during April-June, private investment has surged, with overall investment growing by 7.5% in Q1 FY25. This marks a clear sign of the strengthening private investment cycle, which is essential for long-term economic stability.

High-frequency indicators on the supply side continue to project robust economic growth. Key metrics such as steady GST collections, an upward trend in the Purchasing Managers’ Indices (PMI), and increased air and port cargo traffic reflect sustained productivity and economic activity. These indicators suggest that the momentum built in the first quarter will persist, keeping India’s growth prospects strong in the near term.

The global trade environment remains dynamic, influenced by factors such as geopolitical conflicts, trade disputes, climate change, and the rapid advancement of Artificial Intelligence. Protectionist trade policies and shifting global supply chains are reshaping international trade, with the World Trade Organization (WTO) predicting gradual global trade growth for 2024 and 2025.

Despite these global challenges, India’s export of goods has shown minimal growth in the first five months of the year compared to the same period in 2023, largely due to weak global demand and persistent domestic challenges in scaling up production and competitiveness. Meanwhile, strong domestic demand has led to a rise in merchandise imports. However, urban consumption is showing signs of weakening, as evidenced by a decline in automobile sales in the same period.

Capital flows into India have remained steady, and Foreign Direct Investment (FDI) inflows have seen an uptick. Foreign portfolio investors were net buyers from April to August 2024, contributing to a rise in foreign exchange reserves, which have reached historically high levels. This inflow of capital is a critical factor in supporting India’s economic growth trajectory, as it bolsters the country’s ability to fund investments and maintain currency stability.

The labour market is showing signs of recovery, with net payroll additions under the Employees’ Provident Fund Organisation (EPFO) rising in Q1 FY25. This signals a rebound in formal job creation, which is vital for sustained economic growth and improving living standards. Headline retail inflation remained low at 3.7% in August 2024, with food inflation softening and core inflation remaining steady.

Looking ahead, replenished reservoir levels and increased kharif sowing acreage are positive signs for the food price outlook. However, the uneven spatial distribution of the monsoon could pose risks to agricultural output, which will require close monitoring. As the rural economy strengthens and public expenditure picks up, India’s growth is expected to remain robust in the coming quarters. With strong private consumption, rising investment, and steady global capital inflows, India is well-positioned to maintain its growth momentum through FY25. However, external factors such as global trade dynamics and domestic challenges in production and productivity will require continuous focus to ensure sustainable long-term growth.

This broad-based economic expansion, paired with a favorable inflation outlook and improving labour market conditions, paints a promising picture for India’s economic prospects in the coming months.