India’s Q4 GDP Surges 7.4% on Govt Push But Emkay Warns of a Slower FY26 at 6%

India’s economy grew by a stronger-than-expected 7.4% in the fourth quarter of FY24, driven largely by a surge in public capital expenditure, according to data released by the National Statistical Office (NSO). The robust Q4 performance lifted the full-year FY25 GDP growth to 6.5%, reflecting resilience despite global macroeconomic pressures.

However, the outlook for the next fiscal year remains cautious. Emkay Global Financial Services has revised its FY26 GDP growth estimate down to 6%, citing slowing global momentum, weak domestic investment drivers, and risks to private consumption.

Public Spending Drives Q4 Surge
According to Madhavi Arora, Chief Economist at Emkay Global, the Q4 upside surprise was "partly driven by back-loaded general government spending, primarily through higher public capital expenditure." She noted that construction activity continued to lead industrial output growth, buoyed by infrastructure-focused outlays.

Sectoral Shifts in FY25
While agriculture’s contribution to overall value-added growth improved in FY25, the industry and services sectors witnessed a sharp decline. “The contribution from industry and services declined significantly to ~1.8 percentage points and 3.9 percentage points, respectively, compared to 3.3 and 4.4 in FY24,” Arora said.

Private Consumption Rebounds
On the expenditure side, private consumption showed signs of revival in FY25, helping support domestic demand. However, gross fixed capital formation (GFCF)—a proxy for investment activity—moderated, pointing to restrained corporate capex. “We remain cautious about the subdued activity among private economic agents and are closely monitoring global headwinds,” Arora warned.

FY26: A More Challenging Year Ahead
Looking to FY26, Emkay expects multiple macroeconomic challenges to weigh on growth. “FY26 will be marred by global uncertainties weighing on corporate investment intentions and exports growth, while easing urban incomes will weigh on private consumption,” Arora noted.
While monetary policy support could provide temporary relief, Arora cautioned that “the space for conventional fiscal support appears limited.”

Long-Term Potential in Global Value Chains
Despite the near-term caution, Arora highlighted India’s strategic opportunity amid global economic realignments. “The new global reset could also provide opportunities for India to increase its share in global value chains (GVCs) and improve trend growth in the coming years,” she said. “But this will require coordinated public and private sector effort.”

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