Investment was the key driver for the robust 7.4% GDP growth in the fourth quarter of FY25, even as private consumption moderated and government consumption expenditure contracted.
In Q4FY25, gross fixed capital formation (GFCF) recorded a robust growth of 9.4%, a six-quarter high. The seasonal rush to meet their capex targets by both union and state governments, and a significant push from the private sector appears to have given a fillip to the investment demand in Q4FY25. However, there are concerns about the sustainability of investment demand, especially since private sector is wary in the wake of the global uncertainties.
“The pickup in investment demand is significant but needs to be watched out for a sustainable trend in view of the economic uncertainty and the weak foreign investment demand (as indicated by the net FDI inflow),” said Paras Jasrai, Associate Director at India Ratings.
The Centre’s capex grew by 10.8% to Rs 10.5 lakh crore in FY25 compared with the revised estimate of Rs 10.18 lakh crore for the year.
“At this juncture, the Union government’s capital expenditure growth momentum needs to be restored and supplemented by a continuation of the repo rate reduction cycle so that monetary and fiscal policy support can ensure that India’s real GDP growth does not slip below 6.5% in FY26,” D K Srivastava, Chief Policy Advisor, EY India said.
On the other hand, private consumption growth moderated to a five-quarter low of 6% on year in Q4FY25. It appears to be due to the slowing trend at the upper end of the income ladder, Jasrai said.
The FMCG sales volume moderated in Q4FY25 with the urban areas showing a tepid growth of 2.6% on year which was less than a third of that of the rural areas. In addition, the sharp decline in imports also points to slow spending done by the upper end income strata.
Even though private consumption remains soft, various tailwinds in form of lower inflation, lower interest rate and tax cuts will keep the outlook upbeat said Rajni Thakur, Chief Economist, L&T Finance.
The rural real wage growth for agriculture remained positive for the third straight quarter in Q4FY25. It averaged 3.7% on year in January-February 2025 as per the latest data, which was the fastest pace of growth since Q2FY20, Jasrai said.
The government consumption expenditure declined 1.8% on year in Q4FY25, the sharpest since Q1FY22 due to the base effect (Q4FY24 was 6.6%) and fiscal consolidation. Despite an increase in capex, the Centre’s spending came in at Rs 46.55 lakh crore, 1.3% lower than the revised estimate of Rs 47.16 lakh crore for the year.