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Informist, Tuesday, May 27, 2025

 

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--Fin min: Econ stayed resilient in Apr despite challenging global condition
--CONTEXT: Fin min releases monthly economic review for April 
--Fin min: High frequency data shows strong demand conditions in April 
--Fin min: Food inflation seen benign on rabi harvest, high summer crop area 
--Fin min: Food inflation seen benign on healthy procurement of foodgrains 
--Fin min: External sector performance remains resilient 
--Fin min: Strong pvt consumption, svcs exports primary engines of growth 
--Fin min: RBI rate cut, tax cut to lift FY26 GDP growth closer to 6.8% 
--Fin min: Inflation outlook optimistic on low core inflation, food prices

 

NEW DELHI – The government's direct tax exemptions and other fiscal measures, along with interest rate cuts by the Reserve Bank of India, may stimulate consumption and accelerate India's growth momentum to inch closer to 6.8% in the financial year 2025-26 (Apr-Mar), the finance ministry said Tuesday. "As of April 2025, India remains the fastest-growing major economy despite a revision of growth rates amid rising global uncertainties and trade tensions," the ministry said in its Monthly Economic Review for April.

 

The Economic Survey had projected GDP growth for FY26 to be in the range of 6.3-6.8%. The ministry's view of GDP growth being closer to the upper band of the projection is higher the the central bank's view of 6.5%. Analysts, however, expect India's GDP growth to be closer to the lower band of 6.3%.

 

At the latest meeting of the RBI's Monetary Policy Committee in April, the rate-setting panel had unanimously decided to cut the policy repo rate by 25 basis points to 6.00% to support domestic growth. The panel had also voted to change the policy stance to 'accommodative' from the 'neutral' stance adopted in October. The rate-setting panel is expected to cut the repo rate further by atleast 50 bps this year.

 

One of the key takeaways from Finance Minister Nirmala Sitharaman's eighth Budget presentation speech Feb. 1 was the hike in the tax rebate limit to INR 1.2 million, which effectively means individuals with incomes up to INR 1.2 million per annum are exempted from paying income tax. The move was aimed at increasing disposable income in the hands of taxpayers to spur demand.
 

According to the finance ministry, strong private consumption--especially a rural rebound--and robust services exports remain the primary engines of growth. High frequency data showed strong demand conditions in April as well, the report said. "The services sector continues to post healthy expansion, offsetting some of the softness in merchandise exports," the ministry said. 

 

India's merchandise trade deficit widened to a five-month high of $26.42 billion in April because of a jump in imports during the month, latest data from the commerce ministry showed. The trade deficit was $21.54 billion in March and $19.19 billion in April 2024. On the other hand, services exports in April rose 17.0% on year to $35.31 billion, the data showed. Services imports rose just 4.7% to $17.54 billion in April, pushing the trade surplus to $17.77 billion from $13.42 billion a year ago. The RBI will update the services trade data by the end of May.

 

"Additionally, India's steady performance in services exports and remittance inflows continues to serve as an important buffer for its current account," the ministry said. Irrespective of the differential performance in services and merchandise trade, the finance ministry said the external sector performance remains resilient, with FY26 commencing on a favourable note.

 

The finance ministry noted that in the current scenario of trade-related and other global uncertainties, India has advantages that other countries lack--macroeconomic stability, a fiscal policy that is focused on quality expenditure, a benign inflation and monetary policy backdrop, and financial and corporate sectors with strong balance sheets. "The inflation outlook remains optimistic, supported by low core inflation and a decline in food prices," the ministry said. "The outlook for food inflation is expected to remain benign on the back of a good rabi crop harvest, an increase in the area sown under summer crops, and a healthy procurement of foodgrains," it added.

 

India's headline CPI inflation fell to a 69-month low of 3.16% in April because of a decline in food prices and the statistical effect of a high base, data by the statistics ministry showed. The last time inflation was lower than April's print was in July 2019. This is also the third consecutive month when it has stayed below the RBI's medium-term target of 4%. Core inflation--which excludes food and fuel items, whose prices can be volatile--remained at 4.1% for the second consecutive month in April. The last time core inflation was higher than 4.1% was in October 2023, when it was 4.3%.

 

"This may be no moment for self-congratulation but, equally, it is a moment to remember one's strengths and leverage them to make oneself not just attractive but also indispensable to investors," the finance ministry said.  End

 

Reported by Priyasmita Dutta

Edited by Rajeev Pai

 

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