India’s Economic Recovery Gains Momentum—Growth Outlook Strengthens

A BNP Paribas report signals the end of economic slowdown, with rising orders, industrial production, tax collections, and rural wages driving a stronger-than-expected recovery in FY25 and beyond.

New Delhi, February 23: India’s economic slowdown appears to be over, with key indicators such as new orders, agriculture exports, rural wages, industrial production (IIP), steel output, auto sales, and tax collections rebounding after a weak third quarter of 2024, according to a BNP Paribas report.

The report also noted a recovery in tax collections, indicating gradual economic stabilization despite earlier challenges.

According to the National Statistical Office (NSO), India’s GDP growth is projected at 6.4% for FY25, with a stronger 6.7% expansion expected in the second half of the fiscal year.

“The challenging period of economic contraction seems to be behind us. Key growth indicators are rebounding, and fiscal measures are supporting a stronger recovery,” the report stated.

Agriculture, Inflation, and Fiscal Stability Drive Growth

The agriculture sector remains a critical contributor to this recovery, even though overall growth remains moderate. Encouragingly, food inflation, which was persistently high throughout 2024, showed signs of moderation in the fourth quarter, easing pressure on households.

The report also highlighted fiscal consolidation efforts, with the government stabilizing capital expenditure (capex) allocations after a sharp increase in previous years.

For FY26, the government has targeted a 7.4% rise in capex, emphasizing infrastructure investment while gradually reducing subsidy allocations. The fiscal deficit is now expected to decline to 4.4% of GDP, reflecting a steady improvement in financial discipline.

Union Budget Reforms to Boost Consumption

The Union Budget for FY25-26 has placed a strong focus on stimulating consumption, particularly through income tax reforms.

The government’s decision to raise the income threshold and relax tax slabs under the new tax regime (NTR) is expected to boost disposable incomes, especially for high-income households.

Around 30 million salaried individuals are set to benefit from tax relief, with maximum savings reaching ₹1,10,000 ($1,300) per annum.

Sectors Poised to Benefit from Rising Disposable Incomes

This increase in disposable income is expected to support discretionary spending across multiple sectors, including:

• Durables
• Automobiles
• Asset management
• Healthcare
• Travel & tourism
• Jewelry

Additionally, higher spending power should enhance retail asset quality, particularly in unsecured loans, as financial stability among households improves.

With these positive economic trends, India’s growth outlook remains strong, reinforcing confidence in industrial expansion, fiscal stability, and rising domestic consumption.

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India economy, GDP growth, economic recovery, BNP Paribas report, fiscal deficit, tax relief, disposable income, industrial production, agriculture exports, Union Budget FY25, inflation trends, infrastructure investment, consumer spending, business growth, financial markets