India’s economy expanded by 7.4 percent in the January to March quarter of 2025, significantly surpassing analyst expectations and marking an improvement from the 6.2 percent growth recorded in the previous quarter. This strong quarterly performance highlights India’s resilience as the world’s fastest growing major economy.

However, the overall GDP growth for the full financial year 2024-25, spanning April to March, was estimated at 6.5 percent, the slowest pace in four years. This slowdown reflects persistent challenges despite pockets of growth in key sectors.

The Reserve Bank of India (RBI) is scheduled to meet later in June and is widely expected to reduce interest rates for the third consecutive time to further stimulate growth. This monetary easing is aimed at boosting economic activity amid a mixed outlook.

India’s growth in 2024-25 was supported by strong agricultural output, steady public spending, and improved rural demand, particularly following a robust winter harvest. Nevertheless, the gains in rural areas have not fully offset the continuing weakness in urban consumption, which has been weighed down by high unemployment and stagnant wages.

The country’s economic expansion remains heavily reliant on the government’s infrastructure investments in roads, ports, and highways, as private sector investment continues to lag. Data from ratings agency Icra indicated that private investment as a share of overall expenditure fell to a 10-year low of 33 percent in 2024-25.

Foreign direct investment (FDI) into India also declined sharply to 0.35 billion US dollars, the lowest in two decades. Rising outward investment by Indian companies and capital repatriation partly offset inward flows.

Prime Minister Narendra Modi’s administration is focused on positioning India as a preferred manufacturing hub for global companies. Recently, firms like Apple announced plans to shift production of iPhones destined for the US market from China to India. However, trade analysts caution that ongoing trade tensions, particularly between the US and China, could stall such investment flows.

India is currently negotiating a trade agreement with the United States, expected to be concluded by fall 2025. The US had imposed tariffs of up to 27 percent on certain Indian goods in April, with a 90-day pause on these tariffs expiring on July 9.

Economists forecast that GDP growth for the financial year 2025-26 may slow further to around 6 percent due to global economic uncertainties including the impact of US-China trade disputes. The International Monetary Fund (IMF) projects global growth to slow to 2.8 percent in 2025 and 3 percent in 2026, which could weigh on India’s export demand.

On the positive side, domestic growth drivers include the government’s income tax cuts announced in the federal budget, expectations of an above normal monsoon, and lower food inflation. These factors are expected to support consumer spending and agricultural output.

Overall, India’s growth outlook remains cautiously optimistic but faces significant risks from weak private investment, global trade tensions, and subdued urban consumption. Continued government infrastructure spending and supportive monetary policy will be critical to sustaining momentum in the near term

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