Crucial Fortnight for India's Economy: Budget and Monetary Policies Set to Define Future

India is poised for a pivotal economic phase with the Union Budget announcement and RBI's policy meeting. Key developments expected include fiscal consolidation and growth stimulus. Economic indicators suggest impending reforms to tackle slowed GDP growth, prioritizing private capex and liquidity measures to counteract weak demand.

India is entering a crucial period for its economy as the Union Budget announcement on February 1 and the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting on February 7 will set the economic course. The Union Bank of India's latest report emphasizes the importance of these events in boosting the slowing economy.

After achieving an over 8% growth rate in the fiscal year 2024, India's GDP growth has since decreased to 5.4% in the July-September quarter of the current fiscal year. The report suggests that the government will focus on fiscal consolidation, aiming to reduce the fiscal deficit target to 4.5% of GDP by FY26. This strategy involves expenditure reduction rather than revenue growth, despite a likely repeat of high RBI dividends.

On the monetary front, the RBI is anticipated to implement measures to ease liquidity issues and support economic expansion. A 50 basis point rate cut is expected to initiate a cycle aimed at stimulating demand. Nevertheless, concerns about public spending quality persist, particularly due to capex delays and increasing subsidy burdens in sectors like fuel and fertilizer.

(With inputs from agencies.)