On the growth front, the Crisil note stated that in the next financial year, facilitating monetary policy and government efforts to foster private consumption will help growth.
Projected Rate Cuts to Boost Consumption and Lower Borrowing Costs
The Reserve Bank of India (RBI) is expected to reduce benchmark interest rates by 50-75 basis points (bps) during 2025-26, according to the Crisil India Outlook 2025 report. The move aims to support consumption and lower borrowing costs across the economy.
The report highlights that lower interest rates will help gradually reduce borrowing costs, as these cuts are transmitted to consumer and business loans over time, stimulating demand.
RBI’s First Rate Cut in Five Years
In February 2025, the RBI cut the repo rate by 25 bps—the first reduction in nearly five years—after maintaining it at 6.50% for 11 consecutive monetary policies. This decision followed a cumulative 250 bps rate hike between May 2022 and February 2023, which aimed to control inflation and bring it within the 4% medium-term target.
Economic Growth Outlook for FY26
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The Crisil report projects steady economic growth in FY26, driven by:
- Easing monetary policy
- Government measures to boost private consumption
- 10.1% increase in capital expenditure (capex) as per Budget 2025
However, the report warns that lower fiscal stimulus—as the government narrows its fiscal deficit from 4.8% to 4.4% of GDP—could slightly moderate growth momentum.
Emerging Global Risks and Export Uncertainty
The report also highlights global risks as key concerns, particularly their impact on exports and private sector investment revival. Global economic uncertainties could dampen India’s trade prospects, affecting manufacturing and investment sentiment.
Indian Economy’s Recovery in Q3 FY25
The Indian economy rebounded to 6.2% growth in the December 2024 quarter (Q3 FY25) after hitting a seven-quarter low of 5.6% in Q2 FY25 (July-September period).
- Growth Drivers:
- Strong agriculture and services sector performance
- Increased government and private consumption
- Challenges:
- Muted capital formation, which grew only 5.7% (vs. 5.8% in Q2 FY25)
Conclusion
The expected RBI rate cuts could stimulate consumption and economic growth, but global risks and export uncertainties remain key concerns. While government spending and monetary easing will support growth, sustained private sector investment revival will be crucial for long-term economic stability.
