Indian GDP Outlook for FY 2025-26: Growth Amid Contradictions

Despite robust projections of 6.3-6.5% growth for FY 2025-26, which firmly position India as the world's fastest-growing major economy, a closer examination of recent high-frequency indicators reveals a complex landscape. While the headline growth numbers are impressive, underlying contradictions and sectoral imbalances suggest potential headwinds that warrant careful monitoring in the coming fiscal year.

Growth Forecasts: Solid but Slowing

GDP Growth

Projected real GDP growth for FY 2025-26, per RBI, World Bank, and S&P Global

YTD IIP

Year-to-date Industrial Production growth, indicating widespread sluggishness

Credit Growth

Down from 15.5% a year earlier, showing significant deceleration

Growth is expected to be fueled primarily by robust domestic demand and government capital expenditures. However, multiple high-frequency indicators suggest momentum is less broad-based than previously anticipated, raising concerns about sustainability through the fiscal year.

Industrial Production: Concerning Slowdown

The Index of Industrial Production (IIP) has slowed substantially to just 1.2% growth in May 2025, down from 2.7% in April. This represents a significant deceleration from earlier averages and points to widespread industrial sluggishness.

Year-to-date IIP stands at a concerning 1.8%, with particular weakness in export-oriented and domestic consumption sectors. Only capital goods and infrastructure products remain key positive contributors, while mining and electricity output have actually contracted.

The uneven recovery across sectors highlights persistent headwinds in the industrial segment, creating a potential drag on overall GDP growth projections.

Export-Import Scenario: Mixed Performance

Exports

Total exports (goods and services) grew by 5.94% year-on-year during April–June 2025, with merchandise exports showing marginal growth at just 1.9%.

Growth was concentrated in select categories such as electronics and pharmaceuticals, with particularly strong performance in exports to the USA and Australia.

Imports

Imports increased by a modest 4.4% over the same period, while merchandise imports registered weak growth with notable declines in pulses, transport equipment, and other key import items.

This imbalance between export and import performance has contributed to a higher trade deficit, potentially pressuring the current account.

The concentrated nature of export growth in specific sectors and markets suggests that the external sector's contribution to overall economic growth may remain limited in the coming quarters.