India’s Economic Outlook

India’s economy grew by 6.5 percent in FY2025, with a sharp 7.4 percent expansion in Q4 helping offset a slower first half. While this marks a moderation from the 9.2 percent and 7.6 percent growth rates in the preceding two years, the story is not one of slowdown but of stabilisation after a high base. Growth in the first three quarters was tempered by election-led policy caution, uneven rainfall and persistent global trade uncertainties since late 2024.

That said, the year ended on a strong note. Private consumption and investment activity rebounded, aided by easing inflation and early signs of rural recovery. Crucially, green shoots of private capex emerged, and services exports remained robust, helping India post its lowest current account deficit since FY2016–17 (excluding the COVID-19 years).

In uncertain times, India takes the lead among peer nations

India continues to outperform peer economies despite global uncertainty, across multiple parameters:

• Capital markets remain resilient: Despite capital outflows for much of FY 2024–25, India’s equity markets saw a sharp rebound from April 2025. Indexed MSCI data shows India’s capital market returns have not only recovered but doubled in value since 2019, outperforming most emerging market peers. Robust domestic investor participation and a resurgence in FPI flows have positioned India as a long-term investment destination.
• Domestic consumption outlook remains strong: Consumption accounted for over 61 percent of India’s GDP in FY 2025. Easing inflation, lower policy rates, a boost from tax exemptions and a rising urban middle-income class will drive sustained consumer spending momentum in the near term.
• A digitally skilled workforce is powering services exports: India is using its young, tech-savvy workforce to become a global hub for high-skilled services. With AI-skill penetration second only to the US and over 1,700 Global Capability Centers (GCCs), India’s workforce is a key engine of innovation and economic resilience.
• Trade partnerships are gaining momentum: With the UK trade deal concluded in May and negotiations with the US currently underway, India is actively working to unlock new market access. Despite currently facing a 25 percent tariff on several exports to the US, ongoing trade discussions aim to address these barriers.

Outlook for FY2025–26: Growth with cautious optimism

Looking ahead, we expect India’s GDP to grow between 6.4 and 6.7 percent in FY2025–26, powered by a virtuous trifecta: resilient capital markets, a dynamic consumer base and a globally competitive workforce. A bold new era of trade diplomacy will further reinforce this. Together, these forces position India as a standout performer in an increasingly uncertain global economy. India is well-positioned to maintain its lead among fast-growing economies in FY2025-26.