New Delhi [India], January 30 : The next 10 days will be pivotal for India's economic trajectory as the upcoming Union Budget announcement on February 1 and the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting on February 7 will lay down the policy road map to boost the slowing economy, according to the Union Bank of India (UBI) latest report.
According to the report, both the government and the RBI are expected to announce crucial steps aimed at stimulating growth in the face of a slowing economy.
The Indian economy is facing a slowdown after growing at the rate of over 8 per cent in the fiscal year 2024, recording a slowed growth of 5.4 per cent in the July-September quarter of the current fiscal.
The report adds that as the country grapples with moderating GDP growth, the government is expected to continue its focus on fiscal consolidation.
The report expected that the government will consolidate the fiscal deficit target to 4.5 per cent of GDP in FY26 from 4.8 per cent in FY25.
"The fiscal impulse is expected to be negative with consolidation driven by a fall in expenditure as percentage of GDP rather than pickup in revenues (despite likely repeat of record high RBI dividend in FY26 above Rs 2 lakh cr). More importantly, the quality of spending has come under pressure this year on delay in capex post elections with the public spending also hitting absorptive capacity in few sectors leading to calls for diversification in this Budget," the report added.
The report played for a greater emphasis on stimulus measures in the upcoming budget to address weak demand and bolster private capital expenditure (capex), which has been a major challenge for recovery.
"Focus on stimulus measures will be watched like tax cuts for the middle class, tax rate equalization on bank deposits vis-a-vis other risk assets, boost to capex budget and sector-specific steps like for MSMEs, renewables, tourism etc," added the report.
On the monetary front, it said that the RBI is anticipated to take action to ease liquidity constraints and support economic growth.
The MPC is likely to initiate a 50 basis point rate cut, marking the start of a shallow rate-cut cycle to help stimulate demand, as per the report.
The RBI's focus on liquidity measures has already been evident, as the central bank has provided liquidity booster shots in recent months to combat slowing growth.
The report cautioned that despite these expected moves, concerns remain about the quality of public spending, which has faced pressure in FY25 due to delays in capex and rising subsidy burdens, particularly in the fuel and fertilizer sectors.
As a result, the government's fiscal impulse for FY25 is expected to remain negative, with consolidation driven more by a reduction in expenditure as a percentage of GDP rather than an uptick in revenue growth.
However, the Finance Minister is likely to maintain a cautious approach, sticking to the fiscal consolidation targets while balancing the need for growth-boosting reforms.
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