MUMBAI (Reuters) – The Indian economy is likely to get a boost from rural demand picking up and a government-announced tax relief that is expected to support urban consumption, the central bank said in its monthly bulletin on Wednesday.
Urban demand is “poised for a recovery,” the Reserve Bank of India (RBI) said. A decline in inflation as well as a boost to disposable incomes from the “sizeable” income tax relief announced in the Union Budget 2025-26 will help urban consumption, it said.
“Strong rural demand is expected to receive a further fillip from the robust performance of the agriculture sector,” it added.
The Indian economy is seen expanding at the slowest pace in four years in 2024-25, after GDP growth fell to 5.4% in the July-September 2024 quarter from 6.7% in the previous quarter.
The central bank’s internal models, based on high-frequency data, suggest growth improving to 6.6% in the January-March quarter this year.
“Domestic demand is also expected to benefit from the repo rate cut by the Monetary Policy Committee,” the report added.
The central bank has forecast growth at 6.7% in 2025-26, at the higher end of the government’s forecast of 6.3-6.8%.
The RBI expects inflation to ease to 4.2% in the next financial year, but flagged continuing risk to prices.
“While core inflation remains muted, uncertainty in global financial markets, volatility in energy prices and adverse weather events present upside risks to the inflation trajectory,” it said in the bulletin.
Commenting on global risks, the central bank said a strong dollar and trade policy pivots “could exacerbate capital outflows from emerging economies, push risk premiums higher, and intensify external vulnerabilities.”
(Reporting by Ira Dugal; Editing by Shinjini Ganguli)
