After the second quarter slump, India's economy saw a rebound in the October-December quarter. With the government capital expenditure picking up, the income tax relief announced in the Union budget and the Reserve Bank of India beginning to cut interest rates that will translate into cheaper loans, the expectation is the GDP growth will remain steady in the upcoming financial year.
However, the reciprocal tariffs that US President Donald Trump has announced could still derail global growth and in turn, have a bearing on India's economy as well.
Credit ratings agency Crisil expects India's GDP to grow 6.5 per cent in the year ending March 2026, which will be similar to the expected growth this year (2024-25). Post-Covid, India saw a strong growth rebound; GDP growth for 2023-24 was recently revised upwards sharply to 9.2 per cent. But, now we are reverting to the pre-pandemic rates. Growth in India over three decades has averaged around 6.2 per cent.
"You had very high growth rates for FY2022, 2023 and 2024. Those were above trend, over a weak base, and also fueled by government infrastructure spending. Now, all that is normalising," pointed out Dharmakirti Joshi, chief economist at Crisil.
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From a domestic point of view, the government capex has gone up. The tax relief given to the middle class should support private consumption, feels Joshi. Also, he pointed out that 46 per cent of consumption on average goes towards food. Therefore, if food inflation falls further, people will have more discretionary spending power. That could fuel growth in the coming year, he opined.
But, there are downward risks to the growth forecast, given the uncertainties emanating from what impact US President Donald Trump's reciprocal tariffs have on the global as well as Indian economy.
Already, amid the uncertainties, FIIs have been relentlessly selling from equity markets, with investors seeking the safety of higher risk-free yields back in the US.
The tariff war could also have a secondary impact. With the US raising tariffs on China, the worry is that a lot of the production there will start being diverted to other countries including India, which then puts pressure on local prices.
"There is a fear of dumping," said Joshi.
The metals, especially the steel industry, are at a risk here, with cheaper imported supplies hurting domestic companies and in turn driving prices lower.
"Even if you are not directly involved in the tariff war, there is a collateral damage that takes place," noted Joshi.
Domestically, Crisil expects both urban and rural demand will look up next year. Should the tax cuts drive up private consumption, that could create conditions for companies to make fresh investments. The production-linked incentives should also offer tailwinds for industrial capex.
"Between fiscal 2021 and 2025, industrial capex averaged Rs 4.3 lakh crore per annum. By fiscal 2030, it is expected to be Rs 7.1 lakh crore, driven by higher capacity utilisation, strong corporate balance sheets and the PLI schemes," said Priti Arora, president and business head at Crisil Intelligence.
Over fiscal years 2026-2030, the PLI scheme and emerging sectors are set to account for a quarter of the country's capex, compared with 12 per cent over financial years 2021-2025, according to Crisil.
The Reserve Bank of India cut the benchmark repo rate by 25 basis points in its monetary policy committee (MPC) meeting in February. Crisil expects another 25 basis points rate cut in the next MPC meeting in April. Overall in this cycle, Crisil sees the RBI cutting interest rates by around 75-100 bps (including the Feb rate cut).
