June 17, 2025
Services and construction led the momentum, with construction expanding by 10.8% in Q4
Inflation cooled, with retail CPI falling to a five-year low of 3.2% in April 2025
Household savings fell for a third consecutive year, while financial liabilities increased
Fiscal deficit remained contained at 4.8% of GDP despite lower direct tax collections
India’s economy continued to show resilience amid global headwinds, with real GDP expanding by 7.4% in the final quarter of FY25, taking the full-year growth rate to 6.5%, according to CareEdge Ratings’ latest Economic Pathways report. This outturn beat earlier expectations, though it decelerated from the 8.4% average growth recorded over the past two years.
The report projects a growth rate of 6.2% for FY26, pointing to a stable yet moderated economic trajectory. The uptick in Q4 was primarily driven by the services and construction sectors, with construction activity rising by 10.8%. Manufacturing also gained traction, although private consumption witnessed a slowdown.
Urban demand remained uneven, but rural demand held firm, supported by sustained wage growth. However, household savings declined for the third consecutive year to 18.1% of GDP, accompanied by a rise in financial liabilities to 6.2%, signalling a rise in household leverage.
Inflation data reflected a significant cooling trend. Retail inflation fell to 3.2% in April 2025, its lowest point since August 2019. Food inflation moderated, aided by the timely arrival of Rabi harvests, healthy reservoir levels, and forecasts of above-average monsoon rains. However, elevated prices for edible oils and fruits limited further declines in food inflation. Inflation for FY26 is expected to average 4.0%, down from 4.6% in FY25.
On the fiscal front, the central government maintained its FY25 fiscal deficit at 4.8% of GDP. While direct tax collections underperformed, substantial corporate tax revenues and controlled expenditure helped offset the gap. Capital expenditure reached ₹10.5 trillion, surpassing expectations, with a notable acceleration in both central and state spending during the second half of the year.
Investment activity surged in the final quarter, bolstered by fresh private sector project announcements and the completion of government-led infrastructure initiatives. Sectors such as manufacturing and electricity saw tangible benefits. Non-petroleum’s second half growth, while services exports continued their robust performance. However, the goods trade deficit widened in April, reflecting global demand imbalances.
In monetary policy developments, the Reserve Bank of India reduced the repo rate by 50 basis points to 5.5% in June and initiated a phased 100 basis point cut in the Cash Reserve Ratio (CRR), enhancing banking system liquidity.
Despite a slight depreciation in the rupee driven by volatile foreign portfolio investment flows and elevated oil prices, the currency remains stronger than its previous lows. CareEdge anticipates that FY26 will feature moderate inflation, steady economic growth, and sustained investment activity.
Source: Hindu Business Line