India’s 2025 Growth Outlook: Insights from the Economic Survey 

Introduction

A nation’s economic growth is the most significant macroeconomic parameter of its economy, impacting the income of its residents, job opportunities, and overall development of the country. Increasing growth levels of a country remains a key concern of a country’s economic policies. The World Bank defines economic growth as “measured by the change in the volume of its output or in the real incomes of its residents,” which in simpler terms is the increasing economic activities within a nation or a region.

Due to the prominence of economic growth, it has been a well-researched and theorised area. From Adam Smith’s classical thoughts on division of labour and free market economy to Schumpeter’s creative destruction, and Solow-Swan’s technological progress model, the variables that lead to economies progress have been widely studied and evolved with time. The modern endogenous growth perspective analyses innovation, human capital, and knowledge as factors contributing to growth, while the Keynesian school of thought stressed on government spending and management of demand as prerequisites to economic growth. In the present times, discussions often centre around the idea of sustainable and inclusive growth economic growth, without harming different sectors in the society or the environment.

India’s Growth Trajectory and Recent Trends

The growth of India’s economy passed through different eras, like the ‘Era of State-Led Growth from 1947 to the 1980s’ into the period of ‘Economic Liberalisation’ since 1991, and further, the contemporary era, that is marked by high growth and structural challenges alongside reforms. While adapting itself with the changing order of the world, the Indian economy has successfully transitioned itself from state-led growth to that of a vibrant, market-oriented economy. Presently, the Indian economy is the fifth largest in the world, with a nominal GDP of $4.27 trillion in 2025, as per latest estimates of International Monetary Fund.

The recently published Economic Survey 2024-25 suggests that there have been increasing global uncertainties in the past year with developments, like the Russia-Ukraine and the Israel-Hamas conflict leading to increased geopolitical tensions and regional instability. Such issues affected energy security and food security, supply chains, imports/exports, as well as fuelled volatility across the global financial markets. Despite of such factors, the Indian economy has continued to show resilience, and the survey suggests that the Indian real GDP growth is projected at 6.4% in FY25. Exogenous factors, which include an adverse geopolitical scenario, and global trade disruptions will continue to influence the economic landscape. However, endogenous factors like rising agricultural output, private consumption expenditure, investments, and fiscal discipline provided support to India’s economic growth momentum.

Key Drivers of India’s Economic Growth in FY25

The survey suggests that India’s economic resilience despite the global uncertainty in FY25 has been largely driven by strong agricultural performance, a robust services sector, increased rural consumption, and significant infrastructure investments.

The Agricultural Sector: A key factor bolstering India’s economy has been the agricultural sector, particularly due to record Kharif production. The sector has recorded a growth rate of 3.5 percent in the second quarter of FY25, which is higher than the previous four quarters.

Favourable monsoon conditions have resulted in high output for crops such as rice, maize, coarse grains and oilseeds, directly contributing to improved rural incomes. Government support schemes and enhanced farm productivity have increased purchasing power, driving demand for consumer goods, including FMCG products and two-wheelers.

The Services Sector: The services sector remains the backbone of India’s economic expansion. The economic survey suggests that the first and second quarter of FY25 registered notable growth, leading to a 7.1 percent growth in service sector in the first half of FY 25. There has been growth in new orders, increase in output, improvement in sales and enhanced employment generation.

Additionally, the post-pandemic recovery has revitalised the travel and hospitality sector, boosting employment and domestic spending.

Increased Consumption Expenditure: Private consumption, which accounts for nearly 60% of India’s GDP, has remained resilient in FY25. The economic survey suggests that Private Final Consumption Expenditure (PFCE) has grown by 6.7 per cent YoY in the first half of FY25. Rural demand has been vital in private consumption growth, as suggested by National Accounts data as sales of two-wheeler, three-wheeler and tractors have recorded growth. Rural consumption expenditure is further expected to grow in the second half of FY25 due to growth in sowing of rabi crop.

Fiscal Discipline and Infrastructure Development: The government’s focus on fiscal discipline and infrastructure development has laid a strong foundation for economic growth and capital formation.  Increased capital expenditure in highways, railways, ports, and urban infrastructure has multiplier impact, as suggested by economic theory as it stimulates industrial activity, demand and employment generation. A stable external balance, driven by a trade surplus in services and strong remittances from Indian workers abroad, has also contributed to macroeconomic stability.

Challenges Hindering India’s Growth Trajectory

Slowdown in the Manufacturing Sector and Volatile Global Trade: The Economic Survey suggests that despite India’s strong domestic industrial performance, the manufacturing sector has faced significant challenges due to weak global demand and trade uncertainties amidst the emerging geo-economic conflicts. Since manufactured exports play a crucial role in enhancing a country’s terms of trade and generating foreign exchange, any adverse impact on these exports can contribute to an economic slowdown.

Geopolitical tensions and supply chain disruptions have adversely affected export-oriented industries, while high borrowing costs and global economic uncertainty have slowed private investment. Furthermore, with the incoming of US President Donald Trump and imposition of tariffs by the US on Canada, Mexico and China, the global trade scenario is expected to be volatile in the coming year.

Inflationary Pressure: Inflationary pressures remain a key concern, particularly in the services sector, where costs for healthcare, education, and housing continue to rise. Food price volatility, driven by erratic weather patterns and supply chain disruptions, could lead to inflationary spikes, while global oil market fluctuations pose risks to India’s energy security.

Employment and Skill development: While India’s economy continues to expand, a significant portion of India’s workforce remains engaged in low-wage, unorganised employment, leading to wage growth disparities across different sectors.

Expanding skill development programmes, formalising the gig economy with legal and economic framework and improving labour market flexibility will be critical in bridging employment gaps and ensuring inclusive growth.

The Road Ahead: Prospects for FY26

The economic survey suggests that India’s growth in FY 25 has remained close to the decadal average, despite of elevated world trade uncertainty index and higher geopolitical risk index. The survey also highlights that India’s economic growth in FY25 reflects strong fundamentals, resilient domestic demand, steady shares of investment and consumption in GDP, and a strong external sector. This reflects that all the core variables of aggregate demand function (AD) of an economy (AD=C+I+G+(X-M), where C is consumption, I is investment, G is government spending and X-M is net exports) are expected to remain robust.

While challenges such as global trade uncertainties, inflation, and employment concerns persist, strategic reforms and infrastructure investments can act as catalysts in driving sustainable long-term growth.