Strengthening Growth Momentum
- Economic recovery picks up speed with India’s GDP growth momentum gathering pace in the second half of FY25.
- Push through fiscal policies and rural demand driving such expansion will enhance India’s fastest growing major economy status.
- Domestic consumption and investment will receive a boost with the reduction of the repo rate to 6.25 percent in February 2025.
Inflation Trends & Major Risks
- In January, retail inflation dipped to a five month low, with easing food prices mainly behind it.
- Strong rabi sowing and good kharif production will help control food inflation.
- Global economic instability, energy price fluctuations, and even disruptions due to changes in the weather pose risks to inflation.
Increase in Consumption across the Rural and Urban Landscape
- Rural demand to be buoyed even more by healthy agriculture production.
- Urban consumption is picking up again due to lower inflation and more disposable income.
- This Union Budget 2025-26 tax relief can provide an additional boost for household spending.
Fiscal Policy Related Investment Trends
- The Union Budget is focused primarily on agriculture, MSMEs, investment, and exports, and such aspects will drive the Indian economy toward medium term growth.
- While keeping the liquidity intact, the Reserve Bank of India injects money through open market operations (OMO) for a total of 117,875 crores.
- Foreign portfolio investment (FPI) revives with 1.7 billion dollars inflows into India’s debt market. Indeed, India’s inclusion in the Bloomberg Emerging Markets Local Currency Index has attracted global investors.
Steady Bond Market and Liquidity Management
- The yield on India’s 10 year government bond softened by 6 bps during the month in January because it also testifies the confidence of investors in the economy.
- Stabilization of borrowing costs ensures financial stability with RBI’s liquidity mechanisms.
- Interventions in the government securities market help maintain liquidity, preventing volatility.
What appears favorable toward India’s economic growth is now underwritten by monetary easing and fiscal restraint. Like in most cases, inflationary pressures and uncertain global conditions remain among the concerns that will be eyed closely.
