Urban demand, tax cuts to drive India`s 6.5 pc growth in FY26
India’s economic growth is expected to hover around 6.5 per cent in the fiscal year 2025-26, driven by a more accommodative interest rate environment, recent income tax cuts, and a likely uptick in urban demand, according to experts.
PwC partners Ranen Banerjee and Manoranjan Pattanayak noted that with retail inflation likely to stay below the Reserve Bank of India’s projection of 3.7 per cent for FY26, there is room for the central bank to reduce the policy rate by an additional 25 to 50 basis points.
Experts at PwC believe the combination of monetary easing and tax relief will have a delayed but positive impact on the economy, particularly in terms of corporate performance.
Banerjee indicated that second-quarter corporate earnings for FY26 are likely to outperform those in the first quarter due to these supportive factors.
The PwC experts also emphasised the importance of sustained public capital expenditure.
Banerjee stressed that the government would need to maintain its infrastructure investment momentum for the next decade to ensure consistently high economic growth.
On the rural front, Pattanayak pointed to a steady rise in rural wages, which is expected to boost rural consumption and support overall economic activity.
He also noted that an above-normal monsoon would likely benefit the agricultural sector, further bolstering rural demand. However, the outlook for exports remains cautious.
PwC observed that nominal export growth, as captured in national accounts data, remained below 10 per cent in three out of four quarters in FY25.
Continued global trade uncertainty poses a potential challenge to India’s export performance, they warned.
The domestic economy is starting the second quarter of FY26 on a comparatively solid footing, according to the Finance Ministry's 'Monthly Economic Review for June 2025,' which also shows that the first quarter of FY26 shows robust domestic supply and demand fundamentals, with inflation staying within the target range and monsoon progress occurring as planned.
According to the report, the economy is "steady as she goes" in terms of the current fiscal year (FY26).
