06

India’s gross domestic product (GDP) grew by 6.5% in the financial year (FY) 2024–25, according to provisional estimates. This rate is the lowest after Covid period. This marks a slowdown from the 9.2% growth recorded in FY 2023–24. However, a notable improvement was observed in the primary sector, particularly agriculture, which expanded by 4.4% compared to 2.7% in the previous fiscal year.

Private Final Consumption Expenditure (PFCE) also showed strong growth, rising by 7.2%. In contrast, Gross Fixed Capital Formation (GFCF) grew at a slower pace of 7.1%, down from 8.1% the year before. Both PFCE and GFCF are critical components for sustaining economic output. As a share of GDP, PFCE stood at 56.5% and GFCF at 9.1% in FY 2024–25, compared to 56.1% and 9.5%, respectively, in the previous year.

A major concern, however, is the slowdown in the manufacturing sector, which grew by only 4.5%, a sharp decline from the impressive 12.3% growth recorded in FY 2023–24.

Fourth Quarter Performance of FY 2024–25

The Ministry of Statistics and Programme Implementation (MoSPI) also released GDP estimates for the fourth quarter (Q4) of FY 2024–25. GDP in Q4 grew by 7.4%, which helped lift the overall annual performance. The strong Q4 showing provided a much-needed boost to the yearly growth rate.

Key indicators for Future Economic Performance

Two important developments are shaping the current economic outlook:

1. Retail Inflation falls to a 69-Month Low: Boost to Consumption and Investment

Retail inflation in April 2025 dropped to 3.16%, the lowest in 69 months. This decline was largely driven by falling food prices, especially vegetables and pulses. MoSPI data indicates that retail inflation was 3.34% in March 2025. Importantly, inflation has been on a steady decline for six consecutive months since October 2024, when it stood at a high of 6.21%.

2. Implications of Low Inflation

The Reserve Bank of India (RBI) plays a dual role: promoting economic growth and controlling inflation. While inflation caused by external or supply-side factors is often beyond RBI’s control, the current domestic price stability presents an opportunity for the RBI to lower policy rates.

A reduction in policy rates (repo and reverse repo) would lower borrowing costs across the economy. Lower interest rates mean banks can offer cheaper credit to businesses and consumers, potentially spurring investment, boosting GDP, and creating jobs. This low-inflation environment is thus a positive signal for the overall economy.

Concerns over Weak Core Sector and Industrial Growth

Despite these positive signs, there are areas of concern. Both the core sector and the Index of Industrial Production (IIP) experienced sharp declines in April 2025 compared to April 2024.

The core sector—which includes eight key industries such as refinery products, electricity, mining, petroleum and natural gas, coal, steel, and fertilizers—accounts for around 40% of the IIP. In April 2025, core sector growth fell to just 0.5%, down from 4.6% in March 2025.

As expected, this decline dragged down overall industrial production. On May 28, it was reported that the IIP dropped to an eight-month low of 2.7% in April.

Analysts attribute the core sector slowdown to a high base effect and uncertainties related to trade tensions with the United States. However, there were a few silver linings: capital goods production surged by 20.3%—its fastest pace in nearly two years—albeit from a low base. Production of consumer durables also grew by a decent 6.4%, signaling some resilience in the industrial sector.