Will Urban Demand and Tax Cuts Propel India's Growth to 6.5% in FY26?
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Synopsis
As India's economy gears up for FY26, experts predict a growth rate of 6.5%. With tax cuts and urban demand on the rise, can these factors create a robust economic landscape? Find out how inflation, corporate earnings, and infrastructure investments play critical roles in this forecast.
Key Takeaways
- Projected economic growth: 6.5% for FY26.
- Influence of tax cuts and urban demand.
- Importance of monetary easing.
- Corporate earnings expected to improve.
- Need for sustained infrastructure investment.
- Rural wage increases boosting consumption.
- Export growth concerns due to global uncertainties.
New Delhi, July 31 (NationPress) India's economic expansion is projected to remain around 6.5% in the fiscal year 2025-26, fueled by a more flexible interest rate environment, recent income tax reductions, and a potential increase in urban demand, as noted by industry experts.
PwC partners Ranen Banerjee and Manoranjan Pattanayak pointed out that retail inflation is expected to remain under the Reserve Bank of India's forecast of 3.7% for FY26, providing the central bank with the opportunity to further lower the policy rate by 25 to 50 basis points.
According to PwC analysts, the mix of monetary easing and tax relief will gradually but positively influence the economy, especially in enhancing corporate performance.
Banerjee indicated that corporate earnings in the second quarter of FY26 are anticipated to surpass those of the first quarter due to these favorable conditions.
The PwC experts also highlighted the necessity of consistent public capital expenditure.
Banerjee emphasized that maintaining infrastructure investment momentum over the next decade is essential for achieving sustained high economic growth.
On the rural side, Pattanayak mentioned a continual increase in rural wages that is expected to enhance rural consumption and support broader economic activity.
Moreover, an above-average monsoon is projected to positively impact the agricultural sector, further promoting rural demand. However, the outlook for exports remains cautious.
PwC noted that nominal export growth, as reflected in national accounts data, fell below 10% in three out of four quarters in FY25.
Ongoing global trade uncertainties could pose challenges to India's export performance, according to their analysis.
The domestic economy is entering the second quarter of FY26 on a relatively strong foundation, as indicated by the Finance Ministry's 'Monthly Economic Review for June 2025,' which also reveals that the first quarter of FY26 displays robust domestic supply and demand fundamentals, with inflation remaining within target and monsoon progress proceeding as expected.
The report characterized the economy as “steady as she goes” in the current fiscal year (FY26).
Point of View
I believe that the projected economic growth of 6.5% for FY26 reflects a combination of favorable monetary policies and supportive fiscal measures. The focus on infrastructure and rural wage increases is crucial, but we must remain cautious regarding export challenges. It's vital for the nation to maintain a balanced approach to sustain this growth trajectory.
NationPress
22/09/2025
Frequently Asked Questions
What is the projected economic growth rate for India in FY26?
India's economic growth is expected to be around 6.5% for the fiscal year 2025-26.
What factors are driving India's economic growth?
Key factors include accommodative interest rates, recent income tax cuts, and an expected rise in urban demand.
How does inflation impact India's economic outlook?
With retail inflation projected to stay below 3.7%, there's potential for the Reserve Bank of India to lower policy rates, positively affecting economic growth.
What role does public capital expenditure play in economic growth?
Sustained public capital expenditure is crucial for maintaining infrastructure investment, which supports long-term economic growth.
What is the outlook for India's exports?
The outlook for exports remains cautious due to ongoing global trade uncertainties and nominal export growth falling below 10% in several quarters.
