India’s economy posted an unexpected 7.4% GDP growth in the fourth quarter of FY25, pushing the full-year growth to 6.5%. While that’s a respectable number, it is the slowest pace in the last four years. More importantly, estimates for the next couple of years remain muted, ranging between 6.3% and 6.5%. So, is India’s economic engine losing steam, or is 6.5% growth the new normal?
Economists increasingly fear that growth may plateau around 6–6.5%, and that the ingredients for a return to 7%-plus growth are missing.
Namrata Mittal, economist at SBI Mutual Fund, says the momentum for higher growth is lacking. “Post-Covid, there was a real push to boost exports and ramp up infrastructure spending, which lifted economic growth. But all of that is now built into the base. Government capex as a share of GDP is plateauing, and there is no strong structural push to drive consumption either, especially in the absence of visible income growth,” she says.
India grew at 8.7% in FY22, 7.2% in FY23, and 9.2% in FY24. But growth projections are turning cautious. The IMF projects GDP growth at 6.2% for FY26 and 6.3% for FY27. Even the government’s Chief Economic Advisor (CEA), V. Anantha Nageswaran, while optimistic, puts FY26 growth in the 6.3–6.8% range.
The FY25 number was propped up by a surge in government capital spending in the fourth quarter. Yet, structural weaknesses remain. Private sector investment continues to lag, and although consumption growth rebounded to 7.2% in real terms (up from 5.8% in FY24), it still lacks underlying strength. In fact, private consumption growth in Q4 was just 6%, down from 8.1% in Q3 and 6.2% in Q4 FY24.
According to the CEA, private consumption accounted for 61.4% of GDP at current prices in FY25 — the highest since FY2004. This suggests that despite its recent slowdown, private consumption remains the primary engine of growth in the absence of robust private investment.
Arun Kumar, former professor of economics at JNU, points to weak demand over the past three years, which has kept formal sector capacity utilization at around 75%. “Private investment remains subdued,” he notes.
Gross fixed capital formation (GFCF), a key indicator of capital expenditure, slowed to 7.1% in FY25 from 8.8% the previous year. The Q4 capex push — which saw GFCF rise 9.4% — helped salvage the full-year figure somewhat.
According to Kumar, while agriculture is doing relatively well, its overall contribution to GDP is small and unlikely to move the needle much. For India to consistently grow above 7%, both the services and industrial sectors need to accelerate.
Currently, services contribute 45% to gross value added (GVA), industrial sectors (manufacturing, mining, utilities) account for 27%, and agriculture contributes about 18%.
With global uncertainty, intensifying trade tensions, and the looming threat of generative AI disrupting jobs, sustaining 7% growth looks increasingly difficult. Yet, as Kumar says, “Predicting anything in this environment is risky and difficult.”