Summary: India’s economy is projected to grow at 6.5% in FY 2025-26, driven by resilient consumer demand, normal monsoon, lower commodity prices, and tax relief measures from the Union Budget 2025-26. Rural and urban spending is expected to rise, supported by benign food inflation and higher allocations to job-creating schemes.
However, private corporate investment will need to play a larger role as government capital expenditure slows to meet fiscal deficit targets.
On the external front, global uncertainties, particularly a U.S.-led tariff war, could hurt exports and add pressure to India’s trade outlook.
Overall, strong domestic demand and policy support will help India maintain steady growth, but investment and external risks remain key challenges.
India’s economy is expected to grow at a steady pace of 6.5% in the fiscal year 2025-26, according to a new report from Crisil, buoyed by favourable monsoon conditions, easing commodity prices, and a revival in private consumption.
The report paints a largely optimistic picture of resilient domestic demand, which is set to be a crucial driver of growth. A normal monsoon is expected to support benign farm output, keeping food price inflation in check and freeing up household budgets for discretionary spending. This improved rural sentiment, combined with tax relief measures announced in the Union Budget 2025-26 and higher allocations to infrastructure and employment-generating schemes, is likely to boost both urban and rural consumption.
Private Investment Holds the Key
Despite the positive outlook for consumption, Crisil cautions that the investment outlook remains heavily dependent on private corporate capital expenditure (Capex). With government capital spending expected to moderate as the Centre works towards fiscal consolidation targets, the baton will need to pass to private companies to sustain investment momentum. Encouragingly, sectors such as manufacturing, renewable energy, and digital infrastructure are already seeing green shoots of private investment, though sustained confidence and policy clarity will be critical.
External Challenges Loom Large
However, India’s growth story is not without risks. Crisil warns that global uncertainties could pose significant challenges, particularly on the export front. Escalating trade tensions and a U.S.-led tariff war could disrupt global supply chains and dampen external demand for Indian goods and services. This, in turn, could constrain export growth, which has already been under pressure from slowing global trade.
Balanced Outlook
Overall, India’s domestic growth engine is expected to stay resilient, powered by stronger household spending, rural recovery, and government policy support. However, private investment must step up to fill the void left by slowing public capital expenditure, while geopolitical and trade uncertainties remain a key downside risk.
With fiscal prudence, continued reforms, and a favourable domestic environment, India can still navigate global headwinds and maintain its position as one of the fastest-growing major economies in the world.
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Last Updated on Wednesday, March 5, 2025 1:37 pm by Sai Jyothi
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