India's economy is showing signs of recovery after a challenging period of sluggish growth, according to a report by BNP Paribas.
The report suggests that the worst of the slowdown may be over, as key economic indicators such as new orders, agriculture exports, rural wages, industrial production, steel output, auto sales, and tax collections have improved following a weak third quarter in 2024.
The report highlights a rebound in tax collections, which had declined in the previous quarter. This suggests a gradual recovery despite ongoing challenges.
According to estimates by the National Statistical Office, India's GDP is projected to grow by 6.4 per cent in the financial year 2025. The economy is expected to pick up pace in the second half of the fiscal year, with growth forecasted at 6.7 per cent.
Agriculture has played a crucial role in this recovery, even though overall growth remains moderate.
Food inflation, which had remained persistently high throughout 2024, showed signs of easing in the final quarter, providing relief to consumers and policymakers.
The report also points to the government’s continued efforts toward fiscal consolidation. After a sharp increase in capital expenditure in recent years, the government is now stabilising its spending on infrastructure projects.
For the financial year 2026, a 7.4 per cent rise in capital expenditure has been planned. The government also aims to reduce subsidy allocations while maintaining investment in infrastructure.
India’s fiscal deficit is expected to shrink to 4.4 per cent of GDP in the financial year 2026, a slight improvement compared to earlier projections.
The government remains committed to narrowing the deficit while supporting economic growth through targeted investments.
The BNP Paribas report also highlights the impact of the Union Budget for 2025-26, which aims to stimulate domestic consumption.
One of the key measures introduced is an increase in the income threshold and relaxation of tax slabs under the new tax regime. These changes are expected to boost disposable incomes, particularly for higher-income households.
Approximately 30 million salaried individuals are expected to benefit from the revised tax structure, with the maximum relief amounting to Rs 110,000 per year.
This is likely to have a positive impact on discretionary spending across various sectors, including consumer durables, automobiles, asset management, healthcare, travel, and jewellery. These industries stand to gain as India's affluent middle class continues to grow.
The report further notes that an increase in disposable income could also lead to an improvement in retail asset quality, particularly in the unsecured loan segment. As individuals gain more financial flexibility, the risk associated with such loans is expected to decline.
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