India Q4 FY25 GDP Preview: Growth Rebounds, But Underlying Demand Still Uneven
While the Q4 FY25 GDP figures indicate a rebound, the sustainability of this growth is uncertain. The economy's heavy dependence on government spending raises concerns about long-term fiscal health. India's economic recovery in Q4 FY25 reflects a partial rebound facilitated by government expenditure and agricultural success.
India’s economy likely expanded by 6.5% yr/yr in the January–March quarter of FY25, accelerating from 6.2% in the previous quarter. This marks the strongest performance of the fiscal year, driven primarily by a rebound in rural consumption and resilient services sector growth. The momentum reflects favourable base effects, easing inflation, and improved agricultural output—but the recovery remains uneven and overly reliant on public capex and select rural tailwinds.
Rural activity showed clear signs of improvement in Q4, supported by higher Rabi sowing, robust tractor sales, and stronger fertiliser demand. A 2% rise in acreage and a 23% jump in tractor sales point to increased rural economic activity, despite summer heatwaves. Easing food inflation has also translated into better purchasing power in rural areas, allowing for a modest uplift in discretionary spending. However, urban demand remains sluggish. Passenger vehicle and two-wheeler sales decelerated, and industrial output for consumer durables contracted, reflecting soft household sentiment. Real wage growth in urban areas has yet to firm up decisively, and the transmission of recent rate cuts into household credit remains weak. As a result, private consumption, while improving, is not yet broad-based.
On the production side, services are expected to be the dominant growth engine. Construction is also expected to have performed well on the back of central government capex, although late-quarter spending cuts may weigh on momentum going into Q1 FY26.
The growth trajectory heading into FY26 looks moderately positive, supported by a likely normal monsoon, soft inflation, and further monetary easing. The Reserve Bank of India is expected to continue cutting rates in the June policy meeting, adding to the accommodative backdrop. However, the recovery remains imbalanced, with manufacturing, exports, and urban consumption yet to regain sustained momentum.