The Reserve Bank of India (RBI) has projected the growth rate for the upcoming financial year 2025-26 at 6.7 per cent, an increase from the estimated 6.4 per cent for the current fiscal year. The expected growth will be supported by favourable Rabi crop prospects and a recovery in industrial activity. Household consumption is anticipated to remain strong, bolstered by the tax relief measures announced in the Union Budget 2025-26. These measures include significant tax cuts for the middle class, designed to stimulate consumption after the economy experienced its slowest growth since the pandemic.

India's GDP growth slowed to a 7-quarter low of 5.4 per cent in the July-September period of the current fiscal year, below the RBI's projection of 7 per cent. The GDP growth rate of 6.4 per cent for 2024-25 will be the lowest since the pandemic year of 2020-21, when the economy contracted by 5.8 per cent. The economy had rebounded to 9.7 per cent growth in 2021-22, followed by 7 per cent in 2022-23, and 8.2 per cent in 2023-24.

The Union Budget introduced an increase in the personal income tax exemption limit, now set at Rs 1.2 million, up from Rs 0.7 million, along with tax bracket adjustments that could save high earners up to Rs 0.1 million. Fixed investment is expected to recover due to higher capacity utilisation, strong financial institutions, and continued government focus on capital expenditure. The RBI's growth projection for 2025-26 includes quarterly estimates of 6.7 per cent in Q1, 7.0 per cent in Q2, and 6.5 per cent in Q3 and Q4, with balanced risks.

The Economic Survey had earlier projected a GDP growth range of 6.3-6.8 per cent for 2025-26, supported by strong macroeconomic fundamentals and prudent policy management. The GDP growth for the current year is estimated to reach a four-year low of 6.4 per cent, close to the decadal average.

News source: The Week