Q4 FY25 GDP likely peaked at 7.6%: Rural demand, farm output, services drive growth surge

By: Shantanu Bhattacharji

Economic growth in Q4 FY25 likely hit a four-quarter high, driven by strong farm output, rising rural demand, and robust services and construction activity. Analysts expect Q4 to align with the Centre’s implied 7.6% growth estimate.

India’s economy likely ended the financial year on a high note, with growth in the January–March quarter (Q4 of FY25) expected to be the strongest in a year. But this pickup wasn’t led by booming cities or rising stock markets. Instead, it came from an unlikely but familiar source: rural India. 

Government estimates suggest the economy may have grown by 7.6 per cent in the fourth quarter, lifting the full-year growth to around 6.5 per cent. Analysts say it’s a decent number, especially in a year when global uncertainty and cautious consumer spending weighed on many economies. What’s interesting, though, is what drove the recovery. 

A good harvest—particularly of wheat—played a big role. Fertiliser and tractor sales rose during the quarter, showing farmers were investing and preparing for the future. Wages in rural areas improved modestly, and people in villages bought more everyday goods. Rural sales of fast-moving consumer products jumped 8.4 per cent, according to NielsenIQ data.

That steady rural demand helped other sectors such as trade, hotels, transport, and construction—all of which tend to do better when people move around more and spend a bit more. It’s a sign that the rural economy, often overlooked, still has the power to lift the country when other engines slow down. 

In contrast, urban demand looked weak. Sales of cars and consumer goods were sluggish. Credit and debit card use slowed. Even digital payments—often a bright spot in the economy—lost momentum. Real wages in cities barely rose, and consumers remained cautious. 

The contrast is striking. The cities, usually seen as the drivers of economic growth, are now the ones holding back. High prices, expensive loans, and slow job growth may be the reason city consumers are tightening their belts.

Notably, this uneven recovery raises a bigger question: can India keep growing if only one part of the economy is doing the heavy lifting? Rural India has helped steady the ship this time, but without stronger demand from urban areas, it will be difficult to sustain high growth in the months ahead. 

High-frequency indicators suggest a sequential uptick in services and construction activity in Q4. Domestic air passenger traffic rose 12 per cent, toll collections 17.2 per cent, e-way bills 19.4 per cent, and port cargo traffic 3.7 per cent—all proxies for the trade, hotels, and transport segment. Steel consumption grew 11.8 per cent and cement production 12.4 per cent, pointing to a pickup in construction.

“GDP growth in Q4 is likely to be supported by strong momentum in the hotels and transport segment,” CARE Ratings noted, citing increased travel activity due to the Kumbh Mela and major concerts. Foreign tourist arrivals fell 1.3 per cent in Q4, less than the 3 per cent drop in Q3. 

In contrast, the industrial sector showed signs of sluggishness. The index of industrial production grew 3.6 per cent, and iron production 7.3 per cent, both indicating moderation. Non-financial companies posted muted net profit growth of 6.5 per cent in Q4, with sales growth in low single digits. Rising input costs likely narrowed producer margins. 

Experts are of the view that strong rural demand and public infrastructure spending have kept growth afloat, but they can’t do all the work. Reviving private investment, improving urban consumption, and addressing cost pressures in industry will be key to ensuring the economy not only grows, but grows evenly.