India's Economic Pulse: Key Sectors Driving and Dragging GDP Growth

Despite slight downward revisions from Moody’s, the United Nations, and other agencies, India is expected to remain one of the fastest-growing economies in 2025. This optimism is fueled by resilient consumption, government spending, and structural reforms. CareEdge, a prominent economic research firm, has forecasted India’s real GDP growth for the fourth quarter of fiscal year 2025 at 6.8%, bringing the full-year FY25 GDP growth to 6.3%. This is a slight downward revision from an earlier forecast of 6.4%. The FY26 GDP growth is projected at 6.2%.

Going forward, factors such as recovering rural demand, a lower tax burden, policy rate cuts, falling inflation, and expectations of a good monsoon should support an improvement in economic activity. A sustained recovery in consumption will be critical to drive a meaningful uptick in corporate capex, even as global uncertainties continue to pose a headwind.

CareEdge’s analysis, which utilizes a machine learning method based on its CareEdge Economic Meter (CEM)—an index tracking 40 high-frequency economic and policy indicators—suggested an uptick in economic activity in Q4FY25. The CEM expanded by 3.0% year-over-year, up from 2.6% in Q3FY25. Provisional GDP data for the fourth quarter and FY25 are scheduled to be released on 30 May 2025.

### How Different Sectors Are Powering India’s GDP

CareEdge details the performance across key sectors, highlighting areas showing improvement, mixed trends, and deceleration. The GDP growth in Q4 is likely to be supported by strong momentum in sectors such as agriculture, hotels & transport, and construction. Festivities during the ‘Maha Kumbh’ should support hospitality and transportation.

### Areas Showing Improvement

#### Agriculture Sector The agricultural activities, according to CareEdge, have remained strong. Rabi sowing of foodgrains surpassed last year’s level by 2%, and domestic tractor sales increased by 23.4% YoY in Q4FY25, outperforming the 13.5% YoY growth in Q3. Additionally, fertilizer sales grew by 5.4% in Jan-Feb 2025, higher than the 0.4% growth in Q3FY25.

#### Trade, Hotels, and Transport Domestic air passenger traffic increased by 12% YoY in Q4FY25, higher than 11.4% in Q3. Even though foreign tourist arrivals contracted by 1.3% YoY in Q4FY25, it was lower than the 3% contraction in Q3. Travel activities were up in Q4 due to the Kumbh Mela and major concerts. Toll collections also increased by 17.2% in Q4, up from 12.7% in Q3. E-way bill collections rose 19.4% YoY in Q4FY25, higher than 16.9% YoY in Q3.

#### Mining IIP mining expanded by 2.1% YoY in Q4FY25, higher than 1.8% in Q3.

### Areas Showing Mixed Trends

#### Consumption Demand While rural demand is expected to be supported by good agricultural output and falling inflation, urban demand presents a mixed outlook. CareEdge noted that gross domestic GST collections improved marginally to 9.7% YoY in Q4FY25 from 9.5% YoY in the previous quarter. Growth in IIP consumer durables averaged 5.8% during the quarter, while IIP consumer non-durables contracted by 2.2% in Q4. Passenger vehicle sales in Q4FY25 grew by 2.3%, lower than 4.5% in Q3. Two-wheeler sales also slowed to 1.4% in Q4 from 3% YoY in the previous quarter.

#### Construction Even though capital expenditure from the central government contracted by 4% in Jan-Feb 2025, spending increases towards the end of Q3FY25 are expected to support construction activity in Q4, given the typical lag in its impact. Finished steel consumption was up 11% on-year in Q4, higher than 7.8% in Q3. IIP infrastructure and construction goods also showed improvement in Q4. However, highway construction and bitumen consumption contracted by 8.4% YoY and 3.8% YoY, respectively, in Q4.

#### Manufacturing IIP manufacturing growth moderated to 3.9% YoY in Q4FY25, down from 4.5% in Q3. Production of personal vehicles and cement improved in Q4 with a growth of 6.4% YoY and 12.3% YoY, respectively. However, front-loading of inventory accumulation by firms ahead of the reciprocal tariff supported certain sectors like electronics.

### Areas Showing Deceleration

#### Government Expenditure Central revenue expenditure contracted by 4.7% in Jan-Feb 2025, and central capex also contracted by 4% in the same period.

#### Financials and Real Estate Non-food credit growth slowed to 12.2% YoY in Q4 from 12.3% YoY in Q3 due to moderation in retail credit growth. The collection of life insurance first-year premium contracted by 4.3% YoY in Q4. Growth in stamp and registration revenue of major state governments contracted by 4% YoY in Jan-Feb 2025.

#### External Trade Services export growth remained healthy but slowed to 14.1% in Q4, lower than 17.9% in Q3. Merchandise exports contracted by 0.3% YoY in Q4 against a growth of 4.4% YoY in Q3. The poor performance of goods export is largely due to contracting oil exports (-34% YoY) and moderating non-oil exports (7.4% YoY).