India’s GDP growth in 2024-25 slowed to 6.5% since the pandemic year of 2020-21 which was due to both global and domestic problems. While the economy grew by 7.4% in the fourth quarter (Q4), it is still slower than what was seen in Q4 2020. The agriculture and construction sectors did well, yet manufacturing displayed weaker growth. Spending by households increased which helped drive the economy forward. The economy is slowing down thanks to worldwide turmoil related to trade friction and international concerns.

Context:

• India’s GDP growth slowed to 6.5%

  • In 2024-25, India’s GDP growth slowed to 6.5% which was its lowest since the pandemic.

  • It was the strong showing of agriculture and construction that helped Q4 growth reach 7.4%.

Key Points:

• Quarterly Change in GDP:

  • Q3 growth reached 6.4%.

  • The economy grew by 7.4% in the 4th quarter which was the fastest in 2017 yet below last year’s 8.4%.

• Sectoral Performance:

  • Agriculture: continuing to grow which adds to the strength of the economy.

  • Manufacturing: Grew by 4.8% in Q4, down from 11.3% last year’s Q4.

  • Construction: Returned to double-digit growth at 10.8% in Q4, highest in the fiscal year.

• Household Consumption:

  • An improvement in economic activity that grew from 5.6% to 7.2%, showing consumers are spending more.

• Expert Opinion

  • The Chief Economic Adviser pointed out that India’s economy handled growth well in a tough global climate which was different from advanced economies.

Common Economic Terms

Definition of Gross Domestic Product(GDP)

• Gross Domestic Product (GDP) is the overall value of goods and services made by the country within its borders during a specific time, commonly measured over one financial year.

• It counts all products made by companies, foreign or local, inside the country.

• The GDP figure is built up by Consumption (56%), Investment (32%), Government Spending (11%) and Net Exports (exports – imports).

Nominal GDP vs Real GDP

Formula: Nominal GDP = Real GDP × (Price Index / 100)

GVA (Gross Value Added) vs GDP (Gross Domestic Product)

Formula: GDP = GVA + Taxes – Subsidies

FY25 Economic Projections:

• Nominal GDP: ₹324 lakh crore (increase about 9.7%).

• Real GDP at market prices: ₹184.9 lakh crore (adjusted for inflation).

• Sectoral Growth:

  • The agriculture sector experienced a growth of 3.8% (which is 2.4 points higher than before).

  • Manufacturing fell to 5.3% in 2022, from 9.9% in 2020.

  • Construction contributed 8.6% of the economy this year, a drop from last year’s rate of 9.9%.

  • The services sector expanded by 7.2% mainly driven by the activities related to public administration and financial services.

Challenges:

• Private consumer and investment spending has grown more slowly since FY20.

• Tight management of government budgets reducing demand for new spending.

• Trade deficit is still a problem, even though it has narrowed in some months.

Conclusion:

A GDP growth of 6.5% might raise concerns, but solid agriculture, construction and growing spending show that India’s economy is still stable. If India focuses on further boosting manufacturing and infrastructure development, it might recover and enjoy future sustainable and inclusive growth.

UPSC Prelims Practice Question

Q. Which of these two makes the best explanation of the distinction between Nominal GDP and Real GDP?

• A) Nominal GDP is affected by inflation, but not Real GDP
• B) Taxes and subsidies are part of Real GDP but do not affect Nominal GDP.
• C) Current prices are used to find Nominal GDP, while constant prices are used for Real GDP
• D) Real GDP measures inflation, whereas Nominal GDP looks at how much output is available.

UPSC Mains Practice Question (for GS Paper III)

Q. "A slowdown in India’s GDP growth to 6.5% this year is due to problems both internationally and within the country." Analyze how different sectors are faring and propose ways to support both inclusion and growth. (250 words)

From 31st May to 13th June 2025, Indian Army personnel went to Ulaanbaatar for the Nomadic Elephant, the 17th India-Mongolia Joint Military Exercise that was held there. The event held every year in turn by India and Mongolia helps improve their armies’ ability to work together by training in semi-conventional operations under a UN mandate. The exercise has members from the Arunachal Scouts and Mongolian Special Forces participating and features many types of tactical exercises as well as cyber warfare.

Context:

• Participating in the 17th Nomadic Elephant Exercise, four types of Indian Army formations will join the exercise in Mongolia along with the Mongolian Military.

• It promotes cooperation and skills in operating together in hilly and semi-urban areas.

Details:

Objective for this Exercise:

• Improve the ability of Indian and Mongolian teams to collaborate as part of joint tasks.

• Carry out missions in scenarios of semi-conventional warfare under UN orders.

Main Activities for Training:

• The platoon-level Field Training Exercise (FTX).

• Endurance training, close-range shooting, dealing with rooms, working in small teams and rock training.

• Use of Cyber Warfare to make operations more complicated.

Participants:

• Most of the Indian group was made up of soldiers from the Arunachal Scouts (45 personnel).

• Mongolian forces feature about 150 Special Forces members.

Significance:

• Helps advance defence cooperation between India and Mongolia, leading to more regional stability and safety.

• Helps connect military experts and enables cultural sharing.

• Shows the two countries trusting and cooperating with one another.

Other military exercise participated by India and Mongolia together

• Khaan Quest:

  • Kind of exercise: Worldwide peacekeeping operation.

  • Mongolia, India, the United States and several others networking here.

  • Five Hills Training Area, near the capital of Mongolia.

  • Ways to improve peacekeeping and better collaborate with different countries. 

• Vostok 2022:

  • Type: Russian military exercise which involved a large number of troops.

  • Among them are: Russia, India, Mongolia, China and a number of other countries.

  • The incident took place in the Russian Eastern Military District.

  • Attention: Joining of powers by nations for carrying out joint operations.

Conclusion:

India and Mongolia are strengthening their defence ties through exercise NOMADIC ELEPHANT which supports regional peace and stability. It helps with working jointly, promotes shared connectivity and shows India supports teaming up on security in Asia. Such training helps India confirm its position as a responsible player in regional defense working with fellow partners.

UPSC Prelims Practice Question

With regard to the joint India-Mongolia military exercise Nomadic Elephant, look at these statements:

1. Every year, the exercise is organized in India.

2. It mainly prepares forces for carrying out semi-conventional missions according to a United Nations mandate.

3. The Scouts from Arunachal and Mongolian Special Forces were part of the 2025 competition.

4. In this training, teams only build up their strength and shoot with tactics; there is no involvement in cyber warfare.

Which of the statements given above are correct?

A) 2 and 3 only
B) 1 and 4 only
C) 1, 2 and 3 only
D) 2, 3 and 4 only

The Government of India achieved its fiscal deficit goal of 4.8% of GDP for financial year 2024-25 as per preliminary data from the Controller General of Accounts. Fiscal responsibility was upheld despite total revenue being lower than expected, mainly because of missing capital receipts and less tax money. Total spending and total revenue by the government were roughly equal to 97.8% of what was set in the revised budget. The government plans to gradually cut the deficit to 4.4% of the GDP in the financial year 2025-2026.

Context

• Government meets  fiscal deficit goal of 4.8%

  • Despite reduced revenue, India fulfilled the fiscal deficit goal of 4.8% of GDP in FY25.

  • Income tax collections were down by 6%, but corporate tax collections came in above the targets.

Key Points

• Fiscal Deficit and Expenditure

  • For FY25, the fiscal deficit came to ₹15.77 lakh crore or 4.8% of GDP.

  • A total of ₹46.55 lakh crore (97.8%) was spent for the year which was slightly greater than the budgeted amount.

  • Total revenue amounted to ₹30.78 lakh crore (97.8% of the estimated figure).

• Revenue Shortfalls:

  • Money received from miscellaneous capital resources (such as disposals from investments) added up to ₹17,202 crore, sharing just about half (52.1%) of the target for the year.

  • Disinvestment Earnings: ₹10,131.32 crore

  • Revenue from income taxes:  ₹11.83 lakh crore which is about 6% less than what was forecasted by the government.

  • Corporate Taxes: ₹9.87 lakh crore in corporate taxes which was just 0.7% more than the government estimated.

• Plan for Fiscal Consolidation

  • The Finance Minister aims for the fiscal deficit to decrease again, going down to 4.4% of GDP in FY26.

  • The government is making sure not to raise spending too much above income.

About Fiscal Deficit

What does Fiscal Deficit mean?

• When the government spends more money than it makes, through expenses and revenue (and excluding loans), there is a fiscal deficit. 

• It shows how much debt the government has to incur to pay its bills.

• Simple Definition:

  • Fiscal deficit = Total Expenditure – Total Receipts (excluding borrowings)

Formula of Fiscal Deficit

• Fiscal Deficit = (Revenue Expenditure + Capital Expenditure) – (Revenue Receipts + Recoveries of Loans + Non-Debt Capital Receipts)

Alternate Form (used in budget documents):

• Fiscal Deficit = Total Expenditure – Total Revenue (excluding borrowings)

• It is generally expressed as a percentage of GDP to assess the size of deficit relative to the economy.

Components of Fiscal Deficit

How is Fiscal Deficit Financed?

Formula: Total borrowing = Fiscal deficit for the year

The main framework behind India’s Fiscal Policy

• A Finance Commission is set every 5 years to advise on how to divide funds between the Centre and the States.

• Tax rates and government spending are announced in the Union Budget by the proposal must be approved by the Parliament.

• FRBM Act, 2003 requires the government to act fiscally responsible and to bring down its deficits over time.

• Plans are in place for the fiscal deficit to be 4.4% of GDP in the 2025-26 financial year.

Fiscal Deficit vs Revenue Deficit

Conclusion:

Hitting the fiscal deficit goal even with revenue collection problems shows the government’s determination to keep its fiscal and economic situation stable. There are areas, as shown by lower revenue from income tax, where states should strengthen their plans for bringing in income. Keeping on the consolidation path is key for the economy to grow sustainably and for investors to be confident.

UPSC Prelims Practice Question 

Q.1 Let’s examine the statements given on India’s finances and GDP in the upcoming FY 2024-25:

1. The growth of India’s GDP in FY25 was the biggest since the pandemic year of 2020-21.

2. The 4.8% fiscal deficit was met in spite of revenue not meeting its mark.

3. Growth in the manufacturing sector was greater than growth in construction during Q4 FY25.

4. Cash taken from corporate taxes was not as much as authorities projected in FY25.

Which of the above statements are correct?

A) 2 only
B) 1 and 3 only
C) 2 and 4 only
D) 1, 2 and 3 only

UPSC Mains Practice Question (GS Paper III)

Q. “Even though the fiscal deficit was reached in FY2024–25, slow growth in the Indian economy is caused by imbalances within sectors and difficulties from the world outside.”

Comment on the economic impact the current trend has on India’s economy in the next few years and put forward advice on achieving fiscal stability with the same growth strategy. (250 Words)