The National Statistics Office (NSO), under the Ministry of Statistics and Programme Implementation, Government of India, recently released data indicating that India’s economy grew by an impressive 7.4% in the January–March quarter (Q4) of fiscal year 2024–25 (FY25). This strong performance contributed to an overall annual GDP growth rate of 6.5% for FY25. The government has showcased this achievement as evidence of India’s position as the fastest-growing major economy, outperforming countries like China (5.4% in Q1 2025) and G7 nations such as the United States and Germany, which recorded significantly lower growth rates of around 0.8%.
While India’s GDP growth is certainly noteworthy, absolute figures alone do not present a complete picture of economic performance. A comprehensive assessment requires comparing current data with historical trends, quarterly patterns, and forecasts from multiple agencies. Such comparisons reveal both strengths and emerging vulnerabilities in India’s economic trajectory.
This article examines India’s GDP figures in the context of previous and revised forecasts, historical trends since the COVID-19 pandemic, and quarterly growth rates. We also assess the emerging challenges facing the Indian economy, particularly due to the Israel–Iran conflict and related global developments.
India’s GDP Estimates
The 7.4% growth in Q4 FY25 represents a notable acceleration from previous quarters: 6.5% in Q1, 5.6% in Q2, and 6.4% in Q3. This outpaced the Reserve Bank of India’s (RBI) projection of 6.6% for Q4 and was driven by strong performances in construction (10.8%), services (7.3%), and agriculture (5.4%). Other contributing factors included a recovery in Gross Fixed Capital Formation (9.4%) and positive net exports, particularly of services.
However, when compared with projections from international agencies, India’s FY25 performance presents a mixed narrative. The table below compares earlier and revised GDP growth forecasts for FY26 from institutions such as the Asian Development Bank (ADB), Moody’s Analytics, Fitch Ratings, the World Bank, the International Monetary Fund (IMF), and UBS. While most institutions have revised their forecasts downward due to global and domestic challenges, Moody’s revised its estimate upward, and the World Bank maintained its earlier projection.
Most revisions reflect a cautious outlook, influenced by trade tensions, global uncertainty, and domestic challenges like subdued industrial activity and export demand. For example, UBS made the steepest revision, cutting its forecast from 6.7% to 6.0%, likely due to concerns about global demand. In contrast, Moody’s upward revision may indicate optimism around domestic consumption and public spending.
India’s GDP Performance: FY21 To FY25
The GDP consistently grew between FY21 and FY25, from ₹13.7 trillion to ₹18.8 trillion. Growth peaked at 9.8% in FY22, reflecting recovery from pandemic disruptions, and gradually moderated to 6.5% in FY25, potentially due to global inflationary pressures, lower investment, and geopolitical tensions like the Russia–Ukraine war.
The Primary Sector (agriculture, forestry, fishing, mining) showed steady but modest growth, peaking at 5.9% in FY23 and slowing to 4.4% in FY25. The Secondary Sector (manufacturing, construction) displayed volatility—contracting sharply in FY22 (-12.3%), rebounding strongly in FY24 (11.4%), and then slowing to 6.1% in FY25.
The Tertiary Sector (services) remained the largest contributor to GDP. After a severe 23.2% contraction in FY22, it rebounded sharply over the next three years, although growth moderated to 7.2% in FY25.
Quarterly GDP Trends
FY24 was marked by vigorous economic activity with quarterly growth rates above 8%, while FY25 showed a clear slowdown. Despite Q4 FY25’s strong 7.4% growth, it was still lower than the previous year’s 8.4%, suggesting a gradual loss of momentum. Furthermore, Gross Value Added (GVA) growth at 6.8% in Q4 FY25—compared to GDP growth of 7.4%—indicates that a large part of the headline figure came from a 12.7% surge in net taxes.
Projected Economic Challenges
India’s heavy dependence on imported crude oil (around 88%) leaves it vulnerable to disruptions in the Strait of Hormuz, which carries 40% of its imports. Though a ceasefire in the Israel–Iran conflict was announced in June 2025, ongoing tensions could drive Brent crude prices to $90–$120 per barrel, increasing the import bill by $13–14 billion annually for every $10 hike. This could widen the current account deficit (CAD) by 0.3–0.5% of GDP, pressure the rupee, and raise inflation.
While India has diversified oil sources—particularly from Russia—costlier alternatives like the US and West Africa add to fiscal stress. This could reduce GDP growth in FY26 by 0.3–0.5%. Moreover, delays in RBI rate cuts and forex market interventions might further deplete foreign reserves.
The conflict also threatens exports to the US and Europe, which comprise 34% of merchandise trade, due to shipping reroutes and airspace closures. Higher logistics and insurance costs (up 40–60%) could dampen high-value exports such as pharmaceuticals and electronics. The WTO predicts a 0.2% contraction in global trade, which would worsen India’s trade deficit and potentially push the CAD to 1.5–1.6% of GDP.
Additionally, volatility in financial markets, reduced West Asian remittances, rising fertilizer costs, and rural distress could all drive food inflation, reduce demand, and strain fiscal management.
Conclusion
India’s FY25 growth of 6.5%, while strong, reflects a marked slowdown from 9.2% in FY24. With global challenges on the rise, maintaining even 6.0% growth in FY26 will be difficult. A multi-pronged policy approach is essential. Key priorities should include:
Being the fastest-growing major economy is commendable, but not sufficient. Sustained and inclusive growth in FY26 will require strategic and urgent interventions.
— Dr. Rajiv Khosla is Associate Professor at Amity University, Mohali
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