New Delhi [India], January 10 : Government's policy support in the upcoming Union Budget 2025 could play a key role in boosting India's economic growth to approximately 7 per cent in FY26, from an expected 6.3 per cent in FY25, says a report by SBI Mutual Fund.
The report emphasized the need for measures to enhance revenue expenditure and bring positive changes to income tax policies. According to the analysis, India currently faces a demand-side challenge, even though the supply side is robust. Banks are prepared to extend credit, and corporations are ready to leverage opportunities, but an adequate push to demand remains missing.
It said "the challenge is that India is supply side ready where banks can extend credit and corporate can leverage but an adequate demand thrust is missing. Policy support could help India's growth to recover to ~7 per cent in FY26 from an expected 6.3 per cent in FY25".
The report also mentioned that over the last two years, India's fiscal policy has largely focused on consolidation and tax buoyancy, while monetary policy has been geared towards controlling inflation and maintaining financial stability.
"Policy support" in a budget refers to allocating funds specifically designed to facilitate the implementation of new or existing government policies, often involving financial assistance or incentives to encourage desired outcomes within a particular sector or area of focus.
The report suggested that in FY26, both fiscal and monetary policies could shift their focus towards growth. The Reserve Bank of India (RBI) may consider easing its macroprudential measures and supporting liquidity. A shallow rate-cutting cycle is also a possibility, given the slowdown in credit growth and sluggish deposit growth.
On the fiscal side, the government may slow down the pace of fiscal consolidation, reducing the fiscal deficit by 20-30 basis points instead of the 80-90 basis points reductions seen in FY24 and FY25.
On the global trade front, the outlook remains muted. While India has gained market share in select sectors, exports are unlikely to be the primary driver of growth in the near future, unlike the boom periods of 2021 and 2022.
The report highlighted the need for policy interventions in the upcoming budget to address these challenges and steer India's economy towards sustained growth.
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