India’s economy looks set for steady growth this fiscal year, with global rating agency Crisil forecasting a 6.5 percent rise in gross domestic product (GDP). This upbeat outlook comes thanks to stronger private consumption and key tax reforms that are giving consumers more spending power.
Private spending is picking up steam and should help boost industrial production across the board. In rural areas, a bountiful monsoon, strong planting of kharif crops, and low inflation are all fueling better incomes. But experts at Crisil warn that heavy rains could affect farm output, so they’ll keep a close eye on that.
City dwellers are getting a boost too, from cheaper loans, income tax cuts, and a smoother goods and services tax (GST) system. The Reserve Bank of India’s Monetary Policy Committee has already slashed the repo rate by 100 basis points this year, easing bank lending rates. That process is still unfolding, but it’s making borrowing more affordable.
On top of that, a phased cut in the cash reserve ratio (CRR) of 100 basis points kicked off with a 25 basis point drop in September, and three more are coming soon. This will pump fresh liquidity into the system. Crisil expects yet another repo rate cut before the fiscal year ends, further supporting growth.
The GST tweaks should spark more consumer spending, though how much depends on how quickly businesses pass on the savings. Still, not everything is smooth sailing— a sluggish global economy means weaker exports for India, and new U.S. tariffs are adding pressure. Those 50 percent duties on Indian goods start hitting from September, but ongoing trade talks between India and the U.S. could soften the blow.
An above-normal southwest monsoon is a big plus for rural incomes and keeping food inflation in check. As of September 27, nationwide rainfall hit 108 percent of the long-term average, which bodes well for discretionary spending. Just the same, Crisil says the effects of those extra rains on this season’s agriculture will need careful monitoring.
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