Government capex, rising consumer spending to spur India`s GDP growth in 2025-26
The Federation of Indian Chambers of Commerce and Industry (FICCI) is optimistic about India's economic outlook for 2025-26 as it expects the Government's continuing thrust on capital expenditure and an increase in consumer spending to drive growth despite the external headwinds.
The apex business chamber's latest economic outlook report said that on the investment front, the government’s focus on capital expenditure is expected to remain a key growth driver in the year 2025-26.
The report said that investments in infrastructure and allied sectors - such as roads, housing, logistics, and railways - are anticipated to further economic momentum.
Consumer spending is expected to gain momentum, driven by an improved outlook for the agriculture sector, which is likely to bolster rural consumption and sentiment in the first half of the next fiscal year. Food inflation - which has remained elevated for over a year and strained household budgets - is expected to ease.
Furthermore, monetary easing by the Reserve Bank of India (RBI), resulting in lower interest rates, could also provide an additional impetus to consumption, it said.
"Considering these factors, participating economists have pegged India’s GDP growth forecast for the fiscal year 2025–26 between 6.5 per cent and 6.9 per cent - reflecting a balanced outlook that accounts for both opportunities and challenges," the industry body noted in its latest economic outlook.
The report expects inflation to ease with a CPI-based inflation forecast of 4.8 per cent for 2024-25. This is in line with the RBI's projection in the latest monetary policy announcement in December 2024.
As far as the expected impact of new US President Trump’s policies on the Indian economy is concerned, the report indicates the possibility of short-term disruptions through channels like exports, foreign capital flows, and input costs for the US trading partners including India.
The report further noted that trade tensions, including a potential US-China trade conflict, could disrupt supply chains and raise input costs in the short term. However, economists expect the US to take a calibrated approach towards India. India is also poised to benefit from global supply chain diversification away from China, the report said.
"Targeted industrial policies and sector-specific strategies will remain critical to seizing these opportunities. India could also benefit from lower global oil prices as US production increases. To address risks and unlock opportunities, economists recommended that India should evaluate reducing tariffs on select and specific US imports while ensuring revenue stability and minimal domestic impact," the report noted.
