From strength to strain: India's GDP challenges in FY26

The National Statistics Office (NSO), under the Ministry of Statistics and Programme Implementation, Government of India, recently released data indicating that India's economy grew by an impressive 7.4% in the January-March quarter (Q4) of fiscal year 2024-25 (FY25). This strong performance contributed to an overall annual GDP growth rate of 6.5% for FY25. The government has showcased this achievement as evidence of India's position as the fastest-growing major economy, outperforming countries like China (5.4% in Q1 2025) and G7 nations such as the United States and Germany, which recorded significantly lower growth rates of around 0.8%.

- Dr. Rajiv Khosla and Madhur Ojha

While India’s GDP growth is certainly noteworthy, absolute figures alone do not present a complete picture of economic performance. A comprehensive assessment requires comparing current data with historical trends, quarterly patterns, and forecasts from multiple agencies. Such comparisons reveal both strengths and emerging vulnerabilities in India’s economic trajectory.

This article examines India’s GDP figures in the context of previous and revised forecasts, historical trends since the COVID-19 pandemic, and quarterly growth rates. We also assess the emerging challenges facing the Indian economy, particularly due to the Israel—Iran conflict and related global developments.

India’s GDP Estimates

The 7.4% growth in Q4 FY25 represents a notable acceleration from previous quarters: 6.5% in Q1, 5.6% in Q2, and 6.4% in Q3. This outpaced the Reserve Bank of India’s (RBI) projection of 6.6% for Q4 and was driven by strong performances in construction (10.8%), services (7.3%), and agriculture (5.4%). Other contributing factors included a recovery in Gross Fixed Capital Formation (9.4%) and positive net exports, particularly of services.

However, when compared with projections from international agencies, India’s FY25 performance presents a mixed narrative. The table below compares earlier and revised GDP growth forecasts for FY26 from institutions such as the Asian Development Bank (ADB), Moody’s Analytics, Fitch Ratings, the World Bank, the International Monetary Fund (IMF), and UBS. While most institutions have revised their forecasts downward due to global and domestic challenges, Moody’s revised its estimate upward, and the World Bank maintained its earlier projection.