Strong Domestic Consumption to Support India’s Economy in the Second Half of FY2026
According to a report released on October 23, India’s economy is likely to witness strong recovery in consumption during the second half of fiscal year 2026. The report attributes this improvement to GST rate cuts, lower interest rates, and ongoing tax reforms. The MP Financial Advisory Services LLP (MPFASL) report stated that India’s GDP growth could reach 7% in FY2027, supported by normal monsoon, easing inflation, rising household incomes, lower borrowing costs, and reduced retail prices.
Inflation in India has declined to 2.1% by mid-2025, down from 6.2% in October 2024. The report highlights that while the Reserve Bank of India (RBI) has reduced the MCLR by 1%, banks have passed on only 0.20%–0.30% of the rate cut to customers. Food inflation has also turned negative, providing additional relief to consumers.
Inflation Risks and Fiscal Challenges
The report cautions that a sudden rise in food or fuel prices could adversely impact the relief gained from low inflation. It also mentions that fiscal pressures arising from tax concessions must be carefully managed. Despite these risks, trade tensions and supply-chain disruptions continue to pose global challenges.
RBI’s Growth Outlook and Liquidity Conditions
The MPFASL report adds that system liquidity, which was briefly in the negative range in early 2025, has increased to ₹3.97 lakh crore by August 2025. This will help transmit the benefits of RBI’s repo rate cuts to borrowers. The central bank currently projects GDP growth at 6.8% for FY2026, but with lower inflation, improved liquidity, and GST reforms, growth could accelerate to around 7% in FY2027.
