Advocating for the increase in private investment, the Finance Ministry stated in its latest report that increased participation from the private sector can help India mitigate growth risks arising from external factors. The report highlighted that the resilience of the Indian economy and its steady growth outlook should provide confidence to private investors.
“It is essential that the industry recognises the mutual endogeneity of its investment spending and consumption demand,” the February edition of the Monthly Economic Review, released by the Department of Economic Affairs, stated.
Expected Repo Rate Cut
Highlighting factors that could support consumption growth, such as income tax relief and a potential RBI policy rate cut, the report urged the private sector to respond by ramping up investments in capacity expansion.
Domestic private sector capital formation, backed by India’s strong economic fundamentals and growth prospects, will be a key driver of economic growth in FY26, the report said.
“The proposed changes in the personal income tax structure are expected to improve the disposable incomes of the middle class and their consumption. The 25-basis point policy rate cut in February, as part of a more accommodative monetary policy and enhanced liquidity provisions, can also bolster the growth momentum,” it said.
The Union Budget’s emphasis on long-term development drivers and structural reforms, aligned with the vision of Viksit Bharat, strengthens confidence in India’s economic resilience amid ongoing global uncertainties, the report stated.
On inflation, it highlighted a decline to a seven-month low in February 2025, primarily due to falling food prices. The expectation of a record foodgrain production in 2024-25 is likely to further ease food inflation in the coming months.
From an external trade perspective, core merchandise exports have shown strong resilience, growing 8.2 per cent during FY25 (April–February). Meanwhile, gross FDI inflows have remained robust, rising 12.4 per cent in FY25 (April–January). Additionally, foreign exchange reserves remain sufficient to cover over 11 months of imports.
The report also noted that the global economy continues to face elevated uncertainty due to geopolitical tensions and evolving trade policies.
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India’s Economic Growth
Despite these global headwinds, India’s economic growth accelerated in Q3 of FY25, supported by a recovery in private consumption and an increase in core merchandise exports (excluding oil and bullion), the report concluded.
“Vigorous agricultural activity has supported rural demand. High-frequency indicators of economic activity suggest improved growth momentum in Q4 of FY25, with eway bills showing double-digit growth and PMI indices remaining in the expansionary zone,” it said.
The Indian economy is projected to grow at 6.5 per cent in FY25, despite significant external headwinds, the report stated. This growth was accompanied by an improvement from 5.6 per cent in Q2 FY25 to 6.2 per cent in Q3 FY25.
The services sector remains robust, with growth in Q4 FY25 expected to be driven by stronger export performance, increased government capital expenditure post-elections, and heightened economic activity linked to the Kumbh Mela.
Highlighting the Union government’s fiscal strategy, the report noted that finances continue to strike a balance between fiscal consolidation, welfare, and economic growth. The Budget 2025-26 outlined a cautiously ambitious debt consolidation plan, targeting a reduction of at least 5.1 percentage points in government debt over six years (2024-25 to 2030-31).
With near full-year data for FY25, the report observed a close alignment between actual deficits, key fiscal ratios, and budget estimates, reinforcing the government’s commitment to fiscal discipline.
