Indian economy beats predictions amid global headwinds; FY26 growth outlook stable, says report
India’s economy continues to show a strong resilience despite global headwinds, with real GDP expanding by 7.4 per cent in the fourth quarter of FY25. This takes the overall growth for the last fiscal to 6.5 per cent, exceeding expectations, according to the latest CareEdge Economic Pathways report .
The report also indicates that, while this represents a slowdown from the 8.4 per cent average growth recorded over the past two years, the economy remains robust. For FY26, growth is projected at 6.2 per cent.
Growth was largely driven by the services and construction sectors, with construction activity rising by 10.8 per cent YOY in the fourth quarter. The manufacturing sector witnessed improvement, though private consumption showed signs of moderation.
Urban demand showed a mixed trend, whereas rural demand remained stable, buoyed by strong wage growth. However, falling for the third straight year, household savings stood at 18.1 percent of GDP, even as the financial liabilities increased to 6.2 per cent, reflecting a rise in household borrowing.
In addition, retail inflation softened in April 2025, with CPI falling to 3.2 percent, lowest since August 2019. The sharp decline in food inflation came on the back of rabi harvests, adequate reservoir levels, and favorable rainfall predictions.
However, elevated prices of edible oils and fruits continued to pose pressure, limiting a steeper decline in overall food inflation. Inflation for FY26 is projected to average 4.0%, down from 4.6% in FY25.
On the fiscal front, the central government held the FY25 deficit at 4.8% of GDP. Although direct tax collections fell slightly short, robust corporate tax revenues and controlled expenditure helped manage the gap. Capital spending surpassed expectations, reaching ₹10.5 trillion, driven by a significant rise in both central and state expenditures during the latter half of the fiscal year.
Private sector announcements and government project completions saw an upturn in investments in Q4 FY25, with manufacturing and electricity being the major beneficiaries. Although the trade deficit in goods trade widened in April, export of non-petroleum products stayed slightly positive, while services export remained resilient.
In order to enhance liquidity in the system, the RBI reduced the repo rate by 50 basis points to 5.5 per cent in June, unveiling a phased 100 basis point cut in the CRR.
The rupee depreciated marginally amid volatile foreign FPI flows and elevated oil prices, though it remains above previous lows. Looking ahead, CareEdge anticipates a stable FY26, marked by moderate inflation, sustained growth, and ongoing investment momentum.
The report also indicates that, while this represents a slowdown from the 8.4 per cent average growth recorded over the past two years, the economy remains robust. For FY26, growth is projected at 6.2 per cent.
Growth was largely driven by the services and construction sectors, with construction activity rising by 10.8 per cent YOY in the fourth quarter. The manufacturing sector witnessed improvement, though private consumption showed signs of moderation.
Urban demand showed a mixed trend, whereas rural demand remained stable, buoyed by strong wage growth. However, falling for the third straight year, household savings stood at 18.1 percent of GDP, even as the financial liabilities increased to 6.2 per cent, reflecting a rise in household borrowing.
In addition, retail inflation softened in April 2025, with CPI falling to 3.2 percent, lowest since August 2019. The sharp decline in food inflation came on the back of rabi harvests, adequate reservoir levels, and favorable rainfall predictions.
However, elevated prices of edible oils and fruits continued to pose pressure, limiting a steeper decline in overall food inflation. Inflation for FY26 is projected to average 4.0%, down from 4.6% in FY25.
On the fiscal front, the central government held the FY25 deficit at 4.8% of GDP. Although direct tax collections fell slightly short, robust corporate tax revenues and controlled expenditure helped manage the gap. Capital spending surpassed expectations, reaching ₹10.5 trillion, driven by a significant rise in both central and state expenditures during the latter half of the fiscal year.
Private sector announcements and government project completions saw an upturn in investments in Q4 FY25, with manufacturing and electricity being the major beneficiaries. Although the trade deficit in goods trade widened in April, export of non-petroleum products stayed slightly positive, while services export remained resilient.
In order to enhance liquidity in the system, the RBI reduced the repo rate by 50 basis points to 5.5 per cent in June, unveiling a phased 100 basis point cut in the CRR.
The rupee depreciated marginally amid volatile foreign FPI flows and elevated oil prices, though it remains above previous lows. Looking ahead, CareEdge anticipates a stable FY26, marked by moderate inflation, sustained growth, and ongoing investment momentum.
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