Slow but steady

Easing inflation, lower interest rates, and more disposable income should boost consumption

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Despite an unexpected 7.4% year-on-year (y-o-y) growth in the March quarter, the Indian economy grew at a modest 6.5% in 2024-25, the slowest pace in four years.

Although the gross value added (GVA) rose at a decent 6.8% y-o-y in Q4FY25, the annual momentum slowed to 6.4%—also the slowest in four years.

One must appreciate that the economy has shown resilience in the face of fairly high inflation, tight liquidity, and high interest rates.

Consumption demand has been particularly weak in urban India; in fact, the private final consumption expenditure slumped to a five-quarter low of 6% y-o-y in the fourth quarter, despite the Kumbh factor.

To be sure, some of this could reverse in the current year as the price rise is reined in, the cost of money falls, and tax breaks leave more disposable income for many.

However, it's not clear how the global economy and global trade will fare and how India's export sector will perform.