Overview of India's Economic Outlook

The Reserve Bank of India's (RBI) latest monthly report emphasizes the role of tax reforms, policy support, and favorable macroeconomics in overcoming tariff-related challenges in the second half of the fiscal year 2026. These initiatives are aimed at creating a demand-anchored consumer economy.

Key Economic Drivers

• Income tax relief for households and employment-augmenting measures are set to boost consumption demand.
• This increase in demand could lead to a virtuous cycle of higher investments and stronger growth.

GST Reforms

The Goods and Services Tax (GST) reforms are highlighted as a significant factor in improving business operations:

• Simplification of rates and addressing the inverted duty structure have benefited micro, small, and medium enterprises, as well as startups.
• These reforms are expected to enhance tax buoyancy, compliance, and ease of doing business.

Economic Growth Projections

• RBI's projections for real GDP growth in 2025-26 are 6.5%, with quarterly estimates ranging from 6.3% to 6.7%.
• The first-quarter GDP growth rate exceeded expectations at 7.8%.
• The Chief Economic Advisor anticipates a 7% growth in the second quarter.

Financial Market and Inflation

• Since August, liquidity in the financial market has turned surplus, aiding in the pass-through of the 100 basis points policy rate cuts.
• Despite high U.S. import tariffs, the Indian economy has shown resilience.
• The agriculture sector is expected to maintain growth momentum due to higher kharif sowing, keeping food prices stable.
• Headline inflation, measured by the Consumer Price Index, remained below the target 4% for the seventh consecutive month, supporting demand growth.