India’s economy expands 6.5% in FY25, rural demand, services drive Q4 surge

India’s economy posted a robust performance in the financial year 2024-25 (FY25), clocking real GDP growth of 6.5%, driven by strong domestic demand, resilient rural consumption, and buoyant services activity, according to the Ministry of Finance’s Monthly Economic Review for May 2025.

The momentum picked up notably in the January-March quarter (Q4 FY25), with growth accelerating to 7.4% year-on-year, fuelled largely by an impressive 10.8% expansion in construction activity and a 7.3% rise in services output. Sectors such as real estate, hospitality, and information technology contributed significantly to services growth, underscoring the economy’s structural resilience despite global headwinds.

Agriculture and allied activities also supported the economy, benefiting from a favourable harvest season and government interventions aimed at stabilising food supplies and prices.

On the inflation front, the report highlighted welcome relief for consumers. Retail inflation eased to 2.8% in May 2025, the lowest level since February 2019, with food inflation slipping below 1%. The moderation was attributed to healthy crop output and effective policy measures, including strategic releases from food stocks.

In response to the easing inflationary pressures, the Reserve Bank of India (RBI) lowered the repo rate by 50 basis points in June, bringing it down to 5.5%, and marking a cumulative cut of 100 basis points since February 2025.

Externally, India’s trade performance showed signs of recovery. The country’s total exports, combining goods and services, rose by 2.8% year-on-year in May, reaching $71.1 billion. Meanwhile, the trade deficit narrowed sharply to USD 6.6 billion, down from USD 10.5 billion in April, supported by lower crude oil prices, which fell to around USD 67 per barrel following geopolitical easing in West Asia.

Foreign exchange reserves remained robust, standing at $699 billion, enough to cover approximately 11.5 months of imports—a key signal of external sector stability.

On the employment front, the formalisation of jobs continued, with the Employees’ Provident Fund Organisation (EPFO) reporting 19.1 lakh net additions in April 2025. However, the overall labour force participation rate stood at 54.8%, with unemployment edging slightly higher to 5.6% amid global economic uncertainties.

As India moves into FY26, economists remain cautiously optimistic. The report emphasised that maintaining growth momentum would depend on sustaining domestic consumption, boosting investment, and navigating potential global risks.