Growth momentum to continue in Q1FY26 as India outshines key economies: CEA

Business Standard

2 days ago

India's FY25 GDP growth print of 6.5 per cent shows that the country continues to outperform many of the world's larger and key economies. Growth in FY26 is expected to be between 6.3 and 6.8 per cent, driven by private consumption, a rural rebound, and resilient services exports, Chief Economic Advisor (CEA) V Anantha Nageswaran said on Friday.
The CEA noted that if urban consumption picks up on the back of stronger capital formation, increased hiring, and improved compensation, India could reach the upper end of this range in FY26. He said the income tax relief announced in the Budget for FY26 will support consumption, and that high-frequency indicators for April 2025 show robust industrial and commercial activity.
'It's important to understand that globally, this is a growth-scarce environment. In spite of rising uncertainties due to geopolitical conflicts and trade tensions — which predate 2025 — India is holding up its growth numbers better than many advanced economies,' the CEA said.
'Interest rate moderation by the RBI and the tax relief provided by the government are expected to boost overall consumption. Capital formation by the private sector is also likely to improve, as capacity utilisation levels are high,' he said.
On private sector investments, the CEA remarked that it is not as though private capex has been stagnant — but the growth rate has remained on the slower side.
'Given that India has a large domestic economy, the private sector can definitely invest more. But how much it will ramp up in this current environment is difficult to say,' he added.
Nageswaran highlighted that while the external environment does not pose a funding risk for India, the country must increase its efforts to attract foreign direct investment (FDI) by integrating more deeply into global supply chains and leveraging the 'China plus one' strategy.
He also said that declining crude oil prices could lower the import bill, create fiscal space, and ease external economic pressures.
However, he warned that renewed financial market volatility could bring additional uncertainty, potentially weighing on growth. 'Diverging central bank rate paths globally may impact capital flows and financial markets,' Nageswaran said.