India economic outlook, August 2025

Resilience in economic fundamentals in the last quarter pushed growth for fiscal year 2024 to 2025

India’s GDP growth numbers for the last quarter of fiscal 2024 to 2025 came as a welcome surprise, with the economy growing at a brisk 7.4% year on year. Growth for the full fiscal year came in at 6.5%, driven by strong private consumption expenditure and investments, indicating domestic demand might be more resilient than expected, supported by easing inflation and favorable conditions in rural economies.

• Private final consumption expenditure grew 6% in the last quarter of fiscal year 2024 to 2025. Although consumption spending growth slowed this quarter, annual growth was 7.2%, which was well ahead of overall GDP growth.
• What came as a relief is that, after years of being led primarily by the government, green shoots were visible in private investment, suggesting broader participation in capex formation. Gross fixed capital formation rose by a strong 9.4% in the fourth quarter, up from an average of 6.2% in the last three quarters. However, full-year gross fixed capital formation growth was more modest at 6.7%; the fourth-quarter acceleration may suggest that private capex may have turned the corner, as consumption spending showed signs of improvement.
• The impact of global risks and trade headwinds led to a moderation in exports to 3.9% in the fourth quarter compared with an average 7.4% seen in the past three quarters. Nonetheless, exports for the full fiscal year grew at 6.3%, an improvement compared with the 2.2% seen in fiscal year 2023 to 2024. Goods exports were affected more than services exports, and the latter helped India to reduce its annual current account balance to –0.6% of GDP—the lowest since fiscal 2016 to 2017 (except during the pandemic when the balance moved to a surplus).
• Government capex was relatively restrained in the fourth quarter, with revised estimates being 12.2% lower than the budgeted effective capex for the entire fiscal year. Government spending contracted for the quarter by 1.8%—the sharpest fall since the second quarter of fiscal 2022 to 2023, bringing down annual spending growth to just 2.3%.

Last-quarter data for fiscal 2024 to2025 has not only boosted annual growth figures for the previous year but also set a positive trajectory, with notable improvements in key economic indicators, as India enters a new fiscal year.

• Lower government spending brought down the fiscal deficit to 4.8% of GDP in fiscal year 2024 to 2025, despite it being an election year. The latest data points to further improvement in the fiscal position in the first two months of the current fiscal year. The government’s cumulative fiscal deficit, which stands at 0.8% of the annual target, is at its lowest since April 1997 (when the government began publishing monthly economic data).
• The other big factor has been falling inflation, which had been easing since the beginning of the fiscal year, but fell to 2.1% in June 2025, marking the lowest levels since January 2019. This came as a big relief for Indian consumers and policymakers, who saw it as an opportunity to aggressively pursue easing monetary policy and cut policy rates by 100 basis points between February and June.

India is maintaining a steady lead over peer economies

While one might argue that India’s economic growth moderated in the last fiscal, compared with the exceptional 9.2% growth recorded the year before, the continued resilience of the Indian economy underscores the strength of domestic fundamentals and effective policy support. India has made remarkable progress in its global economic standing, consistently climbing the ranks in terms of growth performance and macroeconomic stability over the past decade (figure 1).

This is despite persistent shifts in trade and globalization trends, the impact of the pandemic, and geopolitical conflicts in regions accounting for a large share of crude-oil production. 

Indian capital markets are getting deeper with strong returns on investment

India saw its share of ups and downs through fiscal year 2024 to 2025: The country witnessed capital outflows for five straight months until March 2025, before turning to modest inflows.⁴ Events such as stimulus announcements in China in September and US election results caused volatility in many emerging markets.⁵ At home, national elections and elevated inflation (until January 2025) amid strong capital outflows tested India’s economic resilience.

Yet, India’s capital markets have emerged as a standout performer among emerging and developed economies alike: India’s stock market indices witnessed a sharp turnaround since April 2025 (figure 2).

To compare capital market performance, data from Morgan Stanley Capital International, for a select few peer nations, were indexed to April 2024. India’s rebound in these indices outpaced most emerging market peers amid global volatility in the recent months (figure 2). This could be attributed to a strong rebound in foreign portfolio investment flows in May and June 2025, particularly into sectors like financial services, telecommunications, and services.⁶

Considering the long run, India’s equity market outperformed its peers by a significant margin. When indexed to 2019, India’s capital market returns have grown twice in value (figure 2).

Domestic consumer spending: A stable and reliable pillar

One of the most compelling indicators investors are closely monitoring is the sustained rise in consumption spending, besides evolving consumer spending patterns. This indicator, in particular, remains the largest driver of economic growth in India, contributing approximately 61.4% to GDP in fiscal year 2024 to 2025.⁷ Notably, urban consumption and a shift in spending preferences toward luxury goods are emerging as key pillars of this momentum, an evolution we highlighted in the April 2024 and August 2024 editions of this outlook.

In the near term, easing inflation and proactive monetary policy are expected to further fuel consumption spending. The Reserve Bank of India has implemented a 100-basis-point rate cut over three consecutive policy meetings, aiming to drive credit growth and boost both investment and consumer spending (figure 3).

Despite these cuts, however, India’s inflation-adjusted real interest rates remain among the highest among emerging economies, currently hovering between 1.5% and 2%.⁸ With inflation moderating to 2.1% in June 2025—the lowest since January 2019—the central bank has greater flexibility to support growth by cutting policy rates in case of external shocks or domestic headwinds, compared to other emerging economies.

Looking ahead, India is poised for a significant transformation in its consumer landscape. By 2030, the country is expected to add around 75 million middle-income class and 25 million rich and affluent households, with these segments projected to account for 56% of the population.⁹

This demographic shift will position India as one of the fastest-growing consumer markets globally. Major Indian cities are set to become primary drivers of consumer spending across the Asia Pacific, even as urban consumption spending growth slows in more advanced economies (figure 4).

This trajectory will be supported by a combination of factors such as a young and growing population, improving trade dynamics, and a rapidly digitizing consumer base.

India’s workforce edge in a digital economy

India is swiftly transforming its global image, from a hub of low-skilled outsourcing to a powerhouse of tech-driven talent. By harnessing its young, digitally adept population (with over half under the age of 30 and an expected addition of 100 million by 2030),¹⁰ the country is positioning itself as a leading center for tech-enabled workforces.

India, one of the world’s top producers of science, tech, engineering, and mathematics talent, generates approximately 2.5 million graduates annually, far ahead of most developing countries.¹¹ According to a study by Stanford University, India is also catching up fast in emerging technology skilling, with a growing focus on artificial intelligence, data science, cloud, and cybersecurity. AI skill penetration is among the highest in India, compared to developed and developing nations, and second only to the United States (figure 5).¹²

Notably, India’s STEM and AI-skilled workforce has powered the robust growth of its global capability centers (GCCs), now numbered at over 1,700,¹³ hosting research and development, data analytics, product design, and innovation units for Fortune 500 companies. India’s policy support, private sector participation, and ed-tech innovation make it one of the few countries able to skill at scale and speed. Consequently, India’s services exports have increased substantially (from 33% of total exports in fiscal year 2014 to 2015 to 46% in fiscal year 2025 to 2026). This has helped offset the rising goods imports, thereby reducing the current account deficit (as noted earlier).

India is opening new trade doors

As India carves out a new growth road map—one built on a foundation of high investment returns, robust consumer demand, and an increasingly AI-skilled workforce—it will be enhanced by the country’s maturing trade diplomacy. Recent strategic trade negotiations, notably with the United Kingdom in May and the ongoing talks with the United States,¹⁴ and the highly anticipated deal with the European Union by the end of the year,¹⁵ will likely act as powerful multipliers, reinforcing each of these three engines of growth and giving sharper direction to India’s economic momentum over the coming decade.

Bilateral trade and investment agreements will offer India a unique advantage by enabling it to craft highly customized partnerships based on mutual strengths. Uncertainty still prevails around the final parameters of the India-United States trade deal, as a 50% tariff is imposed on Indian exports to the United States starting Aug. 27, 2025.¹⁶ At the time of this writing, India and the United States are working toward a mutually beneficial trade agreement and focusing on key strategic sectors.¹⁷

The potential impact of these trade partnerships will be significant for India. Greater market access could translate into stronger exports, improved incomes, higher employment, and ultimately, a boost to domestic demand. The trade deal also offers a strategic advantage: It is likely to deepen bilateral cooperation in areas such as AI, digital transformation, and innovation-led startups. Strengthened intellectual property frameworks and services provisions will support R&D exports and partnerships, particularly in tech and life sciences.

However, much of the outcome from the United States-India trade deal will be clear once it concludes in the coming months and is subsequently implemented. We will detail the specifics in the subsequent outlook report. Till then, Deloitte remains positive about the partnerships as the deals get finalized.

India’s near-term economic outlook

Backed by improving economic fundamentals and a strong policy push to boost consumption spending (through tax exemptions and easing monetary policy),¹⁸ we now expect India to grow between 6.4% and 6.7% in fiscal year 2025 to 2026, in our baseline scenario. Easing inflation is expected to further bolster consumer confidence and purchasing power, fueling a surge in spending across sectors. With oil prices expected to remain range-bound, it will likely keep overall inflation low and support an improvement in the current account balance, given oil’s significant share in the import bill. We expect strong domestic demand in the first half of the next year, driven by a significant uptick in private spending, followed by strong private investments as businesses factor in uncertainties. Growth next year will be even stronger, and the momentum over the next two years is set to lift GDP beyond its pre-COVID trend. The pandemic-induced gap will not just be closed, it will be decisively surpassed.

That said, India’s growth projections in the current fiscal year will likely be tied to broader global trends, including rising geopolitical uncertainties and a delayed synchronous recovery in the West than previously anticipated. Disruptions to global trade and supply chains due to intensifying geopolitical uncertainties will also affect demand for exports.

Domestically, India will have to focus on raising per capita income to ensure a broad-based and consumption-led growth, with a sharper emphasis on employment generation and upskilling. As technology continues to reshape the job market and redefine skill demands, it will be imperative for the government to ensure broader access to AI and digital skills across the workforce of all categories. Only then can the drivers outlined above deliver the momentum needed to propel India’s growth in the future.