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.
