The Indian economy grew 6.5% in fiscal year 2024-25 and 7.4% in the quarter ending March, according to data released by the National Statistical Office (NSO) on Friday that underlines the nation’s position as the fastest growing economy in the world.

In current dollar terms, India’s gross domestic product (GDP) is now $3.9 trillion compared to $3.6 trillion in 2023-24, according to an estimate by research agency Crisil after the data was released. According to the International Monetary Fund, India is on pace to become the fourth largest economy in the world with GDP of $4.3 trillion in 2025-26.

Pointing out that India is the fastest growing economy for the fourth year in a row, finance minister Nirmala Sitharaman said that all the engines of growth– manufacturing, services and agriculture– have propelled the Indian economy in the January-March quarter and indicated that the prospects of a good monsoo would maintain the momentum in the current fiscal year.

“India is sustaining this growth as the fastest growing economy now for the fourth year continuously without a break, thanks to the work of our small, medium and large industries, which are coming in and making sure our manufacturing capacity, our service capacity, are all intact. And agriculture has also sustained us,” she said at an awards function in the Capital.

The data shows that the Indian economy has lost momentum compared to fiscal year 2023-24 when the GDP growth was 9.2%. To be sure, that growth was largely a reflection of pent-up demand after the Covid pandemic, a fact also highlighted by Sitharaman in her speech. But private investment, required to sustain growth beyond 7%, continues to remain sluggish.

Growth for the fiscal and the quarter was higher than most analysts’ estimates. A Bloomberg poll of economists had expected annual GDP growth of 6.3% and 6.8% for the quarter.

The primary reason for the divergence between analyst estimates and the actual numbers is the wide gap between GDP (7.4%) and Gross Value Added (6.8%) growth in the March quarter. GDP is the sum of GVA and indirect taxes minus subsidies.

Sajjid Chinoy, Chief India Economist at J.P. Morgan, who had projected a 6.5% and 7.5% growth number for the fiscal year and the March quarter, that were closer to the actual numbers, had expected this variance due to a fall in subsidies.

“But, as with several GDP prints in recent years, the (GDP versus GVA) outturn will need careful interpretation, because it will be driven substantially by a sharp fall in subsidy payouts in the last quarter, compared to the previous year”, Chinoy had written in a GDP preview research note released on May 28.

To be sure, the March quarter GDP numbers are not surprising when seen in the context that even the second advance estimate of GDP released by the NSO in February had assumed a growth rate of 7.6% in the March quarter while projecting a 6.5% annual growth rate.

While fiscal consolidation has played a role in the large gap between GDP and GVA growth in the March quarter, its impact was less than in 2023-24. India’s fiscal deficit fell sharply from 5.6% in 2023-24 to 4.8% in 2024-25, according to the provisional data released on Friday. But it is expected fall only 40 basis points to 4.4% in 2025-26.

With the larger economic situation largely unchanged between the second advance estimates released in February 2025 and provisional data released on Friday, what are the key takeaways from the disaggregated GDP data?

Private consumption seems to have regained its primacy as the growth driver while capital formation and government spending seem to be losing steam. The latter is to be expected as government capex growth has already peaked and fiscal consolidation is weighing on government’s revenue expenditure. Government Final Consumption Expenditure and Gross Fixed Capital Formation lost momentum growing at 2.3% and 7.1% in 2024-25 compared to 8.1% and 8.8% in 2023-24. Private Final Consumption Expenditure grew at 7.2% in 2024-25 compared to 5.6% in 2023-24.

“Consumption growth outpaced GDP, primarily driven by robust rural demand supported by a strong agricultural sector…We anticipate that consumption will remain robust in the current fiscal year, buoyed by favourable domestic factors such as normal monsoon patterns, the transmission of interest rate cuts by the Reserve Bank of India (RBI), and middle-class income tax benefits”, Dharmakirti Joshi, Chief Economist, Crisil, said in a note.

At the sectoral level, the growth slowdown was broad based in every sector except in agriculture which grew at 4.6% in 2024-25 compared to 2.7% in 2023-24. The slowdown was the sharpest in manufacturing, where the growth rate fell from 12.3% in 2023-24 to just 4.5%. It is important to underline that part of the slowdown in manufacturing is driven by indexation (accounting for inflation) issues. This is borne out from the fact that nominal growth in manufacturing in 2023-24 (10.9%) was lower than real growth (minus inflation) and it has gone back to being higher than real growth (6.3%) in 2024-25. Services, which account for more than half of GVA grew at 7.2% in 2024-25 compared to 9% in 2023-24. Its private components, namely, Trade, Hotels, Transport, Communication & Services related to Broadcasting, and Financial, Real Estate & Professional Services lost momentum. Public Administration, Defence & Other Services saw a small uptick in growth.

RBI’s Monetary Policy Committee (MPC) has projected a GDP growth of 6.5% for 2025-26 in April, which was a 20-basis point downgrade from the projection made in February 2025 on account of increased downside risks from the global economy.

“Government retains its outlook on FY26 growth at 6.3-6.8%, with private consumption, especially the rural rebound, and resilient services exports as the key drivers,” Chief Economic Advisor V Anantha Nageswaran said while reacting to the GDP numbers. “Multiple agencies project India’s growth to be in the range of 6.3 – 6.7 per cent in FY26. Amidst global uncertainty, global growth for 2025 and 2026 is likely to slow,” he added.