New Delhi, May 30 (PTI) Indian economy expanded at a faster pace than expected in the last quarter of the 2024-25 fiscal, helping clock a 6.5 per cent growth rate in the year that elevated its size to USD 3.9 trillion and held promise of crossing world's fourth-largest economy Japan in FY26.

The Indian economy grew at 7.4 per cent in January-March - the fourth and final quarter of April 2024 to March 2025 fiscal (FY25) - reflecting a strong cyclical rebound that was helped by a rise in private consumption and robust growth in construction and manufacturing.

The expansion of 7.4 per cent during January-March 2025 was the best in the fiscal. It was better than 6.4 per cent in the preceding October-December 2024 quarter but was lower than the 8.4 per cent growth recorded in January-March 2024, according to the data released by the National Statistics Office (NSO) on Friday.

The 6.5 per cent growth in FY25 was in line with the government projection made in February. This growth was the slowest in four years and compared to a 9.2 per cent expansion in the previous 2023-24 fiscal.

The growth rate in FY25 is the fastest among all major economies of the world. China grew by 5.4 per cent in the first three months of 2025.

"India is sustaining this growth as the fastest growing economy now for the fourth year continuously without a break, thanks to the work of small and medium, large industries, which are coming in and making sure our manufacturing capacity, our service capacity are all intact. Agriculture has also sustained us even during the Covid and subsequently," Finance Minister Nirmala Sitharaman said.

The size of the Indian economy rose to Rs 330.68 lakh crore or about USD 3.9 trillion from USD 3.6 trillion in the previous fiscal 2024. This makes India the world's fifth-largest economy behind the US, China, Germany and Japan. With a 6.3 per cent to 6.8 per cent growth rate in the current fiscal, it is likely to overtake Japan, whose economy is estimated at around USD 4.19 trillion.

The nominal growth remained in the single digits at 9.8 per cent.

Chief Economic Adviser (CEA) V Anantha Nageswaran said GDP's provisional estimates for FY25 are in line with the expectation of 6.5 per cent, and India still outshines the contemporary economies.

For the current financial year, he said, the government has retained its outlook at 6.3-6.8 per cent, with private consumption, especially the rural rebound, and resilient services exports as the key drivers.

Declining crude oil prices, benign food inflation, and robust exports will be a silver lining for the economy.

"India's growth is holding up in a growth-scarce environment," he said, adding that India outshone other large and contemporary economies.

In the fourth quarter, manufacturing output rose 4.8 per cent year-on-year as opposed to a revised expansion of 3.6 per cent in the previous quarter, while construction activity jumped 10.8 per cent, up from 7.9 per cent in the previous quarter. Also standing out was the performance of public administration services (8.7 per cent), which makes the government spending the driving force.

Also helping was the revival of the primary sector and Private Final Consumption Expenditure (PFCE), rising by 7.2 per cent, improving from 5.6 per cent in the previous year.

However, the outlook for the current fiscal year may face headwinds from a global slowdown and tariff uncertainties. US President Donald Trump has proposed reciprocal tariffs of 26 per cent on imports from India, but they are on hold until July 9 as trade talks continue.

Sankar Chakraborti, MD & CEO, Acuite Ratings & Research, said the "economy is expanding, but not necessarily accelerating in a broad-based manner close to its potential rate".

However, the recovery is uneven; rural consumption has improved, but urban demand remains fragmented, constrained by stagnant real wage growth, high youth unemployment, and cautious discretionary spending.

Investments, mainly from the public side, have outshone, while private capex remains tepid due to global and economic frictions.

The nominal GDP growth of 9.8 per cent against a real growth of 6.5 per cent implies a GDP deflator of around 3.3 per cent, indicating inflation is range-bound.

"This growth number, with the current background of low inflation, creates some monetary space. We continue to expect the RBI to deliver two more 25 bps rate cuts this year, in June and Aug," Chakraborti said.

Aditi Nayar, Chief Economist, Head - Research & Outreach, Icra, saw the GDP growth dipping slightly to 6.2 per cent in the current FY26, while Radhika Rao, Executive Director and Senior Economist at DBS Bank, expected the growth to stabilise around the mid-6 per cent range at the start of FY26, supported by farm output, relief in purchasing power from lower inflation and monetary easing as well as continued public spending.

However, external uncertainties could have an impact on trade and investment channels.

Rumki Majumdar, Economist, Deloitte India, said agriculture has emerged as a bright spot in FY2024–25, growing at a robust 4.6 per cent compared to 2.7 per cent in the previous year.

With the monsoon arriving on time and food inflation easing, rural households are likely to see improved purchasing power. This comes on the back of already strong rural consumption trends over the last few quarters (as seen in the FMCG sector growth), and the momentum is expected to continue, providing a solid tailwind to overall domestic demand.

Dharmakirti Joshi, Chief Economist, Crisil, said consumption growth outpaced GDP, primarily driven by robust rural demand, supported by a strong agricultural sector. A sharp catchup in investment growth in the last quarter also brought annual investment growth above GDP growth.

In the current fiscal, normal monsoon patterns, the transmission of interest rate cuts by the Reserve Bank of India (RBI), and middle-class income tax benefits are likely to bolster urban consumption and complement strong rural demand. However, investment demand is likely to remain sluggish, as elevated uncertainty will dampen corporate investment appetite, and public investment is planned to grow at a slower rate compared to fiscal 2025.

"Net-net, we expect India's GDP to grow at 6.5 per cent in fiscal 2026 with risks tilted downwards," Joshi said.

Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India, opined the GDP estimate at 6.5 per cent growth for FY25 is a strong print in view of the global headwinds facing the economy.

"The primary sector has printed strong, essentially owing to a strong showing by agriculture that has supported the growth numbers. The manufacturing growth has printed weak, and it is a matter of concern, especially given the trade-related disruptions and global economic slowdown expected in FY26," Banerjee said. PTI NKD CS ANZ ANZ BAL BAL