Key Points

The set of indicators showing an improvement during April-May includes the government’s capital expenditure, passenger vehicle (PV) production, GST e-way bills, the government's non-interest, non-subsidy revenue expenditure, petrol and diesel consumption, non-oil exports, vehicle registrations, and Coal India Ltd’s (CIL) output. These trends augur well for both industrial and services GVA growth in the ongoing quarter.

While rains have picked up after a hiatus in early-June, the spatial and temporal distribution remains crucial to support favourable kharif sowing and sustain rural demand, according to an ICRA report. “The prospects for urban consumption remain bright owing to the income tax relief, rate cuts and softening food inflation,” the report mentioned.

Going forward, rural sentiments appear strong, which should bolster demand for two-wheelers and tractors, while prospects for urban demand are favourable, aided by the income tax cut and lower borrowing costs. Global risks, however, remain elevated amid geopolitical tensions, volatility in global financial markets and lingering uncertainty around tariff policies.

ICRA said it maintains India's GDP growth forecast for FY26 at 6.2 per cent. “Aided by the favourable monsoon forecast and likely dip in food inflation, the CPI inflation is projected to cool to 3.5 per cent in FY2026 from 4.6 per cent in FY2025, lower than RBI Monetary Policy Committee’s (MPC) forecast of 3.7 per cent,” the report mentioned.

While a pause is likely in August 2025, ICRA does not rule out the possibility of a final 25 bps rate cut in October 2025, “based on our subdued growth-inflation outlook”. Assuming an average crude oil price of $70 per barrel in FY2026, India’s CAD (current account deficit) is estimated to remain manageable at 1.1-1.2 per cent of GDP in the fiscal, it added.

- IANS