Page 15 - CII ARTHA

OCTOBER 2025

a shade better, posting 7.4 per cent growth during the Tailwinds
comparable period. As had been the case in the earlier years,
service exports have been the bulwark of India’s trade
performance, logging a growth of 10.6 per cent in the first five
months of the year, thus widening the services trade surplus to The Consumption Bazooka
US$81.0 billion, up from US$68.3 billion in the same period last
year. However, the recent hike in H1-B visa fees by the US With consumption accounting for nearly 57.0 per cent of GDP,
could temper services export growth in the coming months. its revival has a disproportionately large multiplier impact on
the GDP growth print. This fiscal so far, we have seen a slew
Even as US tariffs have continued to create uncertainty, with of favourable factors which would strengthen consumption
the latest cumulative tariffs being imposed on India standing demand and raise its contribution in overall GDP this year.
at a staggering 50.0 per cent, the resumption of the India-US
trade talks with a focus on resolving the key impediments, We believe that private consumption is poised to be the
gives hope and confidence that something positive will emerge primary driver of GDP growth in FY26. The following
in the coming weeks. In view of these evolving developments, factors are expected to provide support to private
CII has revised its real GDP growth forecast for FY26 upwards, consumption this year:
reflecting the economy’s underlying momentum.
- The Fiscal Impetus: Fiscal policy support in the form of
income tax relief announced in the Union Budget, alongside
The upward revision of India’s real GDP the recent GST rates rationalisation is expected to
encourage private consumption by raising disposable
forecast to 6.8–7.0 per cent for the current income of the middle class. Specifically, the positive impact
fiscal reflects CII’s confidence in domestic of reduced GST rates under the GST 2.0 regime, which came
demand resilience, policy traction, and into effect on 22nd September, will be evident in the second
macro-financial stability half of the year. Our estimates suggest a 70-80 bps boost to
real GDP growth during this year coming from the GST
rationalisation measures. While the extent of pass through
of the GST cuts on consumer prices remains to be seen, the
In July 2025, CII had projected GDP growth in the range of on-ground reports from automobile and FMCG companies
6.4-6.7 per cent for the current fiscal, with risks evenly are encouraging.
balanced. However, a stronger than expected performance
during the first half of the fiscal and the fast-evolving global
scenario has necessitated a revisit of CII’s growth forecast for - The Monetary Impetus: The RBI’s 100-bps cut in the repo
the current year. CII’s in-house GDP growth model was re-run rate so far in 2025 and a phased reduction in the cash
after factoring the better-than-expected, first-quarter real GDP reserve ratio (CRR) to be carried out in four traches between
growth print and updating the data of 33 high-frequency September and December, are expected to support urban
monthly indicators (captured in the Annexure at the end of the consumption. Transmission of these rate cuts to bank
article) which have been incorporated into our model. Our lending and deposit rates is currently underway, which
model indicated an average real GDP growth of 6.8 per cent should help ease borrowing costs and improve credit flow to
for the current fiscal. Accordingly, CII has revised the growth the productive sectors. Lower interest rates are likely to
forecast for real GDP upwards in a range of 6.8-7.0 per cent stimulate demand for interest sensitive categories such as
for the current fiscal. This places CII’s projection around the housing, automobiles, and consumer durables, while also
median of leading domestic and global agencies. supporting the working capital needs of businesses.

Real GDP Forecast for FY26 by Different Agencies (y-o-y%) - Benign Inflation: Headline inflation as measured by
consumer price index, has remained benign so far, averaging
Old forecast Revised forecast 2.2 per cent in the first-half (Apr-Sept) FY26 as compared
RBI 6.5% 6.8% with 4.6 per cent in the same period last year. The
moderation has been largely food-led, aided by easing prices
OECD 6.3% 6.7%
of perishables and cereals, while non-food inflation has
IMF 6.2% 6.4% stayed well-anchored, reflecting muted input cost pressures
World Bank 6.3% 6.5% and softening global commodity prices. Looking ahead,
S&P 6.5% Unchanged while the favourable base effect will fade and festive
demand could induce a temporary uptick, the overall
inflation momentum is expected to remain comfortably
within the target band. The RBI’s latest sharply downwardly
In the subsequent sections of this note, we underline the main revised projection of 2.6 per cent inflation for FY26 reflects
reasons behind the GDP growth upgrade, along with the key stable prices, supported by low crude prices, a 7.0 per cent
challenges to achieving this print. year-on-year rise in kharif sowing and improving food supply

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