Tax relief, RBI’s rate cut, and government spending are expected to sustain economic momentum, but export challenges pose risks.
New Delhi, March 2 – India’s domestic demand is expected to remain strong, driven by personal income tax concessions and the Reserve Bank of India’s (RBI) recent repo rate cut, according to S&P Global Market Intelligence. The financial analytics firm projects that real GDP growth will be sustained at 6.4% in fiscal year 2025-26 despite challenges in global trade.
RBI Rate Cut & Tax Relief to Boost Consumption
The RBI reduced the repo rate by 25 basis points in its February 2025 monetary policy meeting, marking a significant step towards supporting economic expansion.
In the Union Budget 2025-26, the government raised the tax exemption limit to ₹12 lakh from ₹7 lakh, providing major relief to middle-class taxpayers. This move is expected to boost consumer spending, savings, and investments, reinforcing domestic economic resilience.
“The modest fiscal stimulus announced in February and RBI’s monetary policy easing should support domestic demand, sustaining growth at 6.4% in 2025-26,” S&P Global Market Intelligence stated in its report.
India’s Growth Outlook: 6.3%–6.8% for 2025-26
According to the Economic Survey presented on January 31, India’s GDP is projected to grow between 6.3% and 6.8% in 2025-26, reflecting continued economic momentum.
The latest GDP data for the October-December quarter of FY 2024-25 showed 6.2% real growth, higher than the 5.6% growth recorded in the previous quarter (July-September) but lower than the RBI’s forecast of 6.8%.
Key Drivers of Growth
- Rural demand recovery and increased government spending played a crucial role in sustaining economic momentum in the December 2024 quarter.
- These factors are expected to continue driving growth in the final quarter (January-March 2025), bringing full-year FY 2024-25 growth to 6.4%, as per S&P Global Market Intelligence estimates.
- The favorable inflation outlook could allow RBI to implement another rate cut in April, though further easing may be limited by a weakening rupee.
Global Challenges: US Tariff Threats & Slowing Exports
Despite strong domestic fundamentals, the report warns that rising US tariff threats and slowing global demand could adversely impact India’s exports, making external trade a potential drag on growth in FY 2025-26.
While domestic demand remains a key strength, the government may need to align monetary and fiscal policies with global trade dynamics to ensure sustained long-term growth.