India’s economy appears to be settling into its long-term trajectory, with the National Statistics Office (NSO) pegging GDP growth at 6.5% for 2024–25, and a surprisingly strong 7.4% growth in the fourth quarter. These provisional estimates, based on broader datasets than the advance estimates, offer a more stable platform for forecasting in an otherwise volatile global landscape. The first and second advance estimates had projected growth at 6.4% and 6.5% respectively, indicating consistency and reliability in the revised data.

This return to trend is significant. India’s average annual growth during the decade preceding the COVID-19 pandemic stood at 6.6%, and recent numbers suggest that the economy is realigning with this baseline. However, the positive surprises seen in GDP revisions over the past three years may be tapering off.

Growth Revisions and Nominal Trends:

For fiscal year 2023–24, GDP growth has seen sharp upward revisions:

·         First Advance Estimate: 7.3%

·         Provisional Estimate: 8.2%

·         Final Revision: 9.2%

The nominal GDP, which accounts for inflation, rose by 9.8%, expanding the economy’s size from $3.6 trillion in 2023–24 to $3.91 trillion in 2024–25. In India’s national accounting framework, provisional estimates carry greater weight than the two earlier estimates, making them a more durable basis for economic forecasting until the next update in early 2026.

Consumption, Investment, and Fiscal Dynamics:

Private consumption grew a robust 7.2%, largely buoyed by rural demand, while urban consumption remained relatively subdued. Yet, a moderation was visible in the final quarter, with overall consumption growth slowing to 6%.

Government consumption expenditure was restrained throughout the year, rising by only 2.3% annually and contracting –1.8% in Q4. On the other hand, capital investment gained momentum, particularly in the last quarter, with central government capex exceeding the revised estimates for the full fiscal year. This public investment push contributed to investment growth outpacing GDP.

Sectoral Performance:

The supply-side story was mixed. Agriculture and services performed strongly, while manufacturing continued to underperform, growing by just 4.5%—a pace slower even than agriculture. Construction, a labour-intensive sector, expanded 9.4%, following on from double-digit growth the previous year. This bodes well for employment generation.

Meanwhile, merchandise exports were nearly flat, coming in at $437.41 billion, compared to $437.07 billion in 2023–24, suggesting stagnation in India’s traditional export sectors.

External Headwinds and Trade Dependencies:

The global trade environment is becoming increasingly complex, with the reimposition of reciprocal tariffs between the US and China and the broader geopolitical uncertainty affecting trade flows. India’s economy, though largely domestic demand-driven, is increasingly integrated into global value chains and capital markets, making it susceptible to external shocks.

Direct effects on India arise from the slowdown in US growth, expected to decelerate from 2.8% in 2024 to 1.5% in 2025, reducing demand for Indian exports. Rising US tariffs further erode Indian competitiveness.

Indirect effects are likely to emerge through other key export markets, notably the European Union and Asia. S&P Global projects global GDP growth to fall from 3.3% in 2024 to 2.7% in 2025. China, facing tariff-driven overcapacity and deflationary pressures, may divert surplus goods to third countries like India, intensifying competitive pressures.

A temporary reprieve came in the form of a recent agreement between the US and China to reduce tariffs by 115% for 90 days, but this truce is short-lived. The post-90-day scenario remains unpredictable, keeping global investors on edge and delaying private investment decisions.

Buffers and Resilience:

Despite external uncertainties, India enters FY 2025–26 with several macroeconomic buffers:

·         Foreign exchange reserves are at a comfortable $686 billion.

·         Current account deficit remains modest.

·         Government’s external debt is moderate.

India’s export composition also provides resilience. Services exports now account for nearly half of total exports and are relatively insulated from the volatility affecting global goods trade. According to the WTO:

·         Global goods trade is expected to contract 0.2% in calendar 2025.

·         Services trade is projected to grow 4%, offering India a cushion against the global slowdown.

Although services exports will also slow, their relative stability offers India a structural advantage.

Monetary Policy and Consumption Outlook:

A record wheat harvest, strong pulses output, and a favourable monsoon forecast are expected to keep food inflation in check and boost agricultural incomes. Additionally, crude oil prices are forecast to remain low—averaging around $65 per barrel—providing relief on the import bill and giving the Reserve Bank of India (RBI) more headroom to support growth.

The RBI is expected to undertake two 25 basis-point rate cuts this fiscal, creating a more accommodative monetary environment. Lower interest rates, combined with income tax cuts announced in the Union Budget, are likely to stimulate urban discretionary consumption.

Moreover, low food inflation disproportionately benefits lower-income households, for whom food and fuel make up a larger share of the consumption basket. This will help boost rural and low-income urban spending, reinforcing the consumption revival.

Investment Climate and Supply Chain Shifts:

The government’s early fiscal push is visible. In April 2025 alone, central government capital expenditure reached ₹1.59 lakh crore, about 14.3% of the annual budgeted target. However, the prospects for private investment remain mixed due to continued global volatility and uncertainty over capital flows and exchange rates.

Despite this, India is benefiting from global supply-chain realignments:

·         Apple plans to manufacture most iPhones for the US market in India.

·         A Vietnamese electric vehicle company is setting up a plant in India with launches expected this year.

Large and mid-sized Indian corporates, which are currently in strong financial health, are well-positioned to tap into these opportunities. Nevertheless, for India to sustain and expand this investment momentum, structural reforms addressing land, labour, and regulatory bottlenecks remain critical.

Way forward:

India’s GDP is expected to grow at 6.5% in 2024–25, broadly aligned with its long-term average. However, risks are tilted to the downside, particularly given the evolving global trade dynamics and subdued private investment.

Key factors that could support and stabilize growth include:

·         Continued strength in rural demand.

·         Expansion of public capital expenditure.

·         Stable agricultural output and benign commodity prices.

·         Increasing integration into global manufacturing supply chains.

Looking ahead, India’s ability to navigate structural constraints and respond nimbly to external shocks will determine how well it can preserve macroeconomic stability while unlocking its full growth potential.

How are global trade tensions affecting India’s exports? What steps can India take to reduce its external vulnerabilities?