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India posted an impressive 7.4% GDP growth in the final quarter of the fiscal year 2025, outpacing expectations and solidifying its status as the world's fastest-growing major economy. This surge comes amid global headwinds and regional instability, underscoring the resilience of the Indian economy even as private investment and urban consumption lag.
The growth figure, released by the Ministry of Statistics, surpassed the 6.7% forecast by Reuters and marked the strongest quarterly performance of the year. For the entire fiscal period ending March 2025, GDP expanded by 6.5%, consistent with government projections but the slowest pace in four years. Still, India's economic momentum remains notable. As Capital Economics' Shilan Shah put it, "India was always going to overtake Japan – and also Germany – given its positive demographics and scope for continued productivity gains."
However, this economic upswing unfolded in a tense backdrop. On May 7, 2025, the Indian military launched "Operation Sindoor" following a terrorist attack near Pahalgam in Kashmir that killed 26 tourists. The cross-border strikes targeted suspected terrorist camps in Pakistan and Pakistan-occupied Kashmir. Though a U.S.-brokered ceasefire came into effect on May 10, uncertainty continues to cloud the investment landscape. "The situation is fragile, and tensions could easily build again," Shah warned, citing potential consequences for both investor confidence and household sentiment.
At home, the Reserve Bank of India has stepped in to bolster growth, cutting interest rates twice consecutively and lowering the policy rate to 6%. Economists expect a further cut in June, possibly bringing the repo rate down to 5.5%. Falling inflation and weak private spending have prompted the central bank's accommodative stance. According to Icra's Aditi Nayar, growth prospects may improve further if the monsoon is favorable and food prices remain contained.
Despite the strong Q4 showing, structural issues persist. Private sector capital expenditure has declined to just 33% of overall investment—a decade low. Net FDI fell to $0.35 billion in 2024–25, the lowest in 20 years, reflecting capital repatriation and weaker investor appetite. Manufacturing remains sluggish, and rural gains have yet to translate into broad-based recovery.
