Informist, Monday, Jul. 28, 2025

--Fin min: Equity inflows, low repatriation showing fresh confidence in econ

--Fin min: Slow credit growth, pvt capex appetite may restrict econ momentum
--Fin min: US tariff uncertainty may weigh on India trade performance ahead
--Fin min: Economy enters Q2 of FY26 on relatively firm footing
--Fin min: FY26 CPI inflation likely to undershoot RBI's forecast of 3.7%
--Fin min: Inflation below RBI's aim affords room for sustained easing cycle
--Fin min:Enough fertiliser, reservoir level bode well for healthy crop view
--Fin min: Domestic demand, robust svcs growth underpinned Q1 econ activity
--Fin min: Agri growth robust so far on favourable progress in monsoon
--Fin min: India econ resilient despite global trade, geopolitical headwinds
--Fin min: Economy sustained its growth momentum in Q1 of FY26
--CONTEXT: Comments from fin min's Monthly Economic Review report for June
--Fin min: Indian econ in mid-2025 presents picture of cautious optimism

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee may have space for sustained policy easing as core inflation remains subdued and overall inflation is also comfortably below the central bank's target of 4%, the finance ministry said Monday. In fact, the CPI inflation for the current financial year could be lower than the RBI's projection of 3.7%, the ministry said in its monthly economic review for June.

In the June quarter, CPI inflation averaged 2.7%, 20 basis points lower than the RBI's forecast of 2.9% for the quarter. Given the trajectory of inflation, the RBI's Monetary Policy Committee has already cut the repo rate by 100 basis points so far in this calendar year. The next meeting of the rate-setting panel is scheduled Aug. 4 to Aug. 6.

"With inflation remaining within the target range and monsoon progress on track, the domestic economy enters the second quarter of FY26 (Jul-Sept) on a relatively firm footing," the ministry said. In the June quarter, the economy sustained growth momentum underpinned by strong domestic demand, robust services growth, and encouraging signs from manufacturing and agriculture, the ministry added. The government will release the GDP growth data for the June quarter on Aug. 29.

The favourable progress of the southwest monsoon has supported the agricultural activity so far, which is likely to lead to higher kharif sowing compared to the previous year. "Adequate fertiliser availability and comfortable reservoir levels augur well for a healthy harvest outlook, providing fresh impetus to rural incomes and consumption," the finance ministry said in the review.

While the Indian economy is resilient amidst global challenges, headwinds to growth persist. "Continued uncertainty on the US tariff front may weigh on India's trade performance in the coming quarters," the ministry said.

There is no clarity yet whether the US will levy country-wise reciprocal tariffs on Indian goods after Aug. 1. US President Donald Trump, who has been sending individual letters to nations, informing them about the reciprocal tariffs due to hit them, has not yet announced any duty for India. While on Apr. 2, Trump had announced 26% reciprocal tariff on Indian goods, it is not clear whether the president will stick to the same level if he does issue a tariff letter to New Delhi. The tariffs mentioned in the latest letters sent to some countries so far are different from what was unveiled for them in April.

Simultaneously, there is also hope that New Delhi will strike an interim trade deal with Washington to insulate Indian exports from the reciprocal tariffs. As prospects for a trade deal improve, financial market volatility has subsided, the ministry said. "There are notable improvements in equity inflows and a lower incidence of repatriations, signalling fresh confidence in India's long-term growth prospects, particularly in sectors like digital infrastructure and manufacturing."

The economy could also face challenge from slow credit growth despite monetary easing, reflecting cautious borrower sentiment and possibly risk-averse lender behaviour, the finance ministry's review for June said. "Slow credit growth and private investment appetite may restrict acceleration in economic momentum." The 100 bps rate cut by the RBI is yet to completely transmit into the banking system.

Overall, "the Indian economy in mid-2025 presents a picture of cautious optimism," the finance ministry said in its review. India appears poised to continue as one of the fastest-growing major economies, with various forecasters projecting the growth for the fiscal year to be between 6.2% to 6.5%, the review added. The finance ministry has projected a GDP growth of 6.3% to 6.8% in the current financial year. End

Reported by Krity Ambey

Edited by Vandana Hingorani

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