India closes FY25 with a 7.4% Q4 GDP growth, led by manufacturing and construction, affirming its position as a global growth engine.
India’s economy closed the fiscal year 2024-25 on a strong note, with the fourth quarter (January–March 2025) registering a GDP growth of 7.4%, as reported by the Ministry of Statistics and Programme Implementation (MOSPI) on May 31, 2025. This performance, driven by standout contributions from the manufacturing and construction sectors, brings the full-year GDP growth for FY25 to 6.5%, aligning closely with MOSPI’s second advance estimate. The robust economic activity in Q4 underscores India’s resilience amid global uncertainties and highlights the pivotal role of key sectors in sustaining growth momentum.
Q4 FY25 GDP Growth: Key Highlights
The Indian economy grew by 7.4% in Q4 FY25, surpassing expectations and marking an improvement over the 6.7% growth recorded in Q3 FY25. This acceleration was propelled by a strong recovery in manufacturing, which grew by 4.8%, and exceptional performance in the construction sector, which expanded by 10.8%. The full-year GDP growth of 6.5% for FY25 reflects a steady performance, consistent with MOSPI’s second advance estimate released earlier in 2025. This growth rate positions India as one of the fastest-growing major economies globally, despite challenges such as global supply chain disruptions and inflationary pressures.
Gross Value Added (GVA), a key indicator of economic activity, grew by 7.2% in Q4 FY25, compared to 6.3% in the same quarter of the previous fiscal year. The divergence between GDP and GVA growth reflects higher net indirect taxes, driven by improved tax collections and government spending. The Economic Survey 2024-25, tabled prior to the Union Budget, noted that India’s economic resilience stems from sustained domestic demand and strategic government interventions in infrastructure and manufacturing.
Sectoral Performance: Manufacturing and Construction Lead the Way
Manufacturing
The manufacturing sector recorded a 4.8% growth in Q4 FY25, a significant rebound from the 2.2% growth in Q3 FY25. This recovery was driven by increased industrial output, supported by government initiatives such as the Production Linked Incentive (PLI) scheme and higher capital expenditure in infrastructure-related industries. The Index of Industrial Production (IIP) for manufacturing showed a year-on-year increase of 5.2% during January–March 2025, reflecting strong activity in electronics, automotive, and capital goods. The growth in manufacturing also benefited from stable input costs and improved supply chain dynamics, which mitigated earlier disruptions caused by global commodity price volatility.
Construction
The construction sector emerged as a standout performer, growing by 10.8% in Q4 FY25, up from 8.6% in the corresponding quarter of FY24. This robust growth is closely tied to the government’s sustained focus on infrastructure development, with capital expenditure allocations reaching ₹10.18 lakh crore in FY25, as per revised estimates. Major projects under the PM Gati Shakti Master Plan, including highways, urban infrastructure, and rural connectivity initiatives, have fueled demand for construction-related activities. The sector also benefited from increased private investment and a rise in real estate activity, particularly in tier-2 and tier-3 cities, driven by housing demand and commercial projects.
Other Sectors
Other sectors also contributed to the Q4 performance, though with varying degrees of impact. The agriculture sector grew by 3.5%, supported by favorable monsoon conditions and higher crop output, though growth was tempered by uneven procurement and price realization challenges. The services sector, a key pillar of India’s economy, recorded a 6.9% growth, driven by trade, hotels, transport, and communication services. Financial services and real estate also showed steady growth, reflecting strong domestic consumption and digital adoption. However, the mining sector grew at a modest 4.3%, constrained by regulatory hurdles and global demand fluctuations for minerals.
Drivers of Economic Resilience
Several factors underpinned India’s strong GDP performance in Q4 FY25. Domestic consumption remained a key growth driver, with private final consumption expenditure (PFCE) accounting for approximately 60% of GDP. Government final consumption expenditure (GFCE) also contributed significantly, supported by increased public spending on infrastructure and social welfare programs. Gross fixed capital formation (GFCF), a measure of investment in fixed assets, grew by 8.2% in Q4, reflecting sustained investor confidence in India’s infrastructure and manufacturing sectors.
The Union Budget 2024-25, presented in July 2024 has in fact played a pivotal role in sustaining economic momentum. It’s focus on capital expenditure, with allocations for roads, railways, and urban development, directly supported the construction and manufacturing sectors. Additionally, the government’s push for digital infrastructure and green energy initiatives, including solar and EV manufacturing, bolstered industrial activity. The Reserve Bank of India (RBI) maintained a stable monetary policy stance, with the repo rate unchanged at 6.5% throughout FY25, ensuring liquidity support for businesses while keeping inflation within the 4–6% target range.
Fiscal and External Sector Dynamics
India’s fiscal discipline has been a cornerstone of its economic stability. The fiscal deficit for FY25 was estimated at 4.9% of GDP, in line with the government’s glide path toward reducing it to below 4.5% by FY26. Improved tax collections, driven by higher GST and corporate tax revenues, supported government spending without compromising fiscal prudence. On the external front, India’s current account deficit (CAD) remained manageable at 1.2% of GDP in FY25, supported by strong services exports, particularly in IT and business process outsourcing, and stable remittance inflows.
Foreign direct investment (FDI) inflows remained robust, with $48 billion recorded in FY25, driven by investments in manufacturing, renewable energy, and digital infrastructure. The rupee remained relatively stable against the US dollar, depreciating by only 2.3% in FY25, supported by RBI interventions and healthy foreign exchange reserves, which stood at $670 billion as of March 2025.
Implications for India’s Economic Trajectory
The 7.4% GDP growth in Q4 FY25 and the full-year growth of 6.5% signal a strong foundation for India’s economic future. The manufacturing sector’s recovery, coupled with the construction boom, highlights the success of government-led initiatives to boost industrial and infrastructure development. These sectors are expected to remain key growth drivers in FY26, supported by the Union Budget 2025-26’s ₹11.21 lakh crore capex allocation, announced on February 1, 2025. The budget’s focus on roads, railways, and defense, along with interest-free loans to states, will further amplify economic activity and job creation.
The strong performance in Q4 FY25 also bodes well for India’s ambition to become a $5 trillion economy by 2027. Sustained investments in infrastructure, coupled with reforms in land, labor, and urban governance, will be critical to maintaining growth momentum. The construction sector’s growth is projected to create an additional 30 million jobs by 2030, while manufacturing is expected to drive India’s integration into global value chains, particularly in electronics, pharmaceuticals, and renewable energy.
Challenges to Sustained Growth
Despite the positive outlook, challenges remain. Inflation, though within the RBI’s target range, averaged 5.1% in FY25, driven by food and fuel prices, which could impact consumption if not carefully managed. Supply chain bottlenecks, particularly in semiconductors and critical minerals, pose risks to manufacturing growth. Additionally, the pace of infrastructure project execution needs improvement, as evidenced by the slowdown in highway construction rates in FY25. Addressing these challenges will require continued policy focus on regulatory simplification, skill development, and public-private partnerships.
India’s Q4 FY25 GDP growth of 7.4%, driven by robust performances in manufacturing (4.8%) and construction (10.8%), underscores the economy’s resilience and growth potential. The full-year growth of 6.5% aligns with MOSPI’s estimates and reflects the success of government policies in fostering domestic demand, infrastructure development, and industrial output. As India moves into FY26, the sustained focus on capital expenditure, fiscal discipline, and sectoral reforms will be crucial for maintaining this momentum. By addressing execution challenges and leveraging private sector participation, India is well-positioned to solidify its role as a global economic leader in the years ahead.