Key Points

The report said the growth is still mainly driven by government spending, especially on construction, while the manufacturing sector remains weak.

It said "the upside surprise in Indian 4QFY25 GDP growth makes a robust headline, but it masks underlying weaknesses. It continues to be dependent on public spending-led construction".

The report mentioned that there are many signs that the headline GDP growth may not reflect the real state of the economy.

For example, money supply grew much slower than nominal GDP, which raises questions about the accuracy of the growth numbers. Also, personal consumption spending grew much faster than the sales volume of consumer companies, showing a mismatch.

While government capital spending rose sharply, private investment likely fell, showing that public spending is not creating the expected boost to the economy.

Demand in the economy also remained low due to weak household income, slower retail lending, and lower government subsidies. Net indirect taxes rose to the highest level since June 2018, which further added to pressure on demand.

The report said, "Despite a reduced external deficit, contraction in total trade indicates slowing global and domestic demand, highlighting a disconnect between reported GDP figures and the on-ground economic situation".

Looking ahead, hopes are resting on rural consumption picking up, supported by a strong agriculture sector. But with private investment still weak and global conditions uncertain, recovery may remain slow.

The Reserve Bank of India is expected to ease policies to support demand, especially if inflation stays low. However, the report notes that low inflation is mostly due to weak demand and incomes.

The report added, "This bidirectional causality can be broken only with a turnaround in productive employment, which has been lacking in the wake of rising ruralisation and private capex".

The report also warned of global risks, including panic buying in global trade ahead of possible new US tariffs under Trump, which could lead to stagflation in the US. This will not help India, as its trade-to-GDP ratio is already shrinking.

- ANI