Key Points
- RBI sees sequential economic activity pickup in second half of 2024-25
Budget focuses on capex and consumption
Retail inflation drops to five-month low
The monthly bulletin noted that the Union Budget 2025-26 prudently balances fiscal consolidation and growth objectives by continued focus on capex alongside measures to boost household incomes and consumption.
Retail inflation moderated to a five-month low in January, mainly due to a sharp decline in vegetable prices.
The Union Budget 2025-26 has placed thrust on boosting consumption while maintaining the quality of expenditure, with effective capital expenditure/ GDP ratio budgeted to improve to 4.3 per cent in 2025-26 from 4.1 per cent in 2024-25 (RE).
The RBI bulletin noted that the uncertainty surrounding global trade and geopolitical landscape, have had a bearing on domestic equity markets.
The benchmark and broader markets declined on account of selling pressures from foreign portfolio investors (FPIs) as sentiments remained weak. The Indian rupee has depreciated in line with other emerging economies, weighed down by the strength of US dollar.
"Strong macroeconomic fundamentals, along with improvements in various measures of external sector vulnerability, have helped India tide over the ongoing wave of global uncertainty," RBI said.
Headline CPI inflation moderated to a five-month low of 4.3 per cent in January 2025 as food prices, especially those of vegetables recorded a sharp decline driven by the arrival of winter crops in the market.
In the bimonthly monetary policy meeting of February 2025, the Monetary Policy Committee (MPC) of the Reserve Bank reduced the policy repo rate by 25 bps to 6.25 per cent as growth-inflation dynamics opened up policy space to support growth while remaining focussed on aligning inflation with the target.
The MPC noted that excessive volatility in global financial markets and continued uncertainties about global trade policies, coupled with adverse weather events, pose risks to the growth and inflation outlook. Accordingly, the MPC voted to continue with a neutral stance, which provides the flexibility to respond to evolving macroeconomic conditions.
In the Union Budget for 2025-26 presented on February 1, the central government has announced that no income tax will be payable on income up to Rs 12 lakh, providing significant relief to taxpayers, especially the middle class. Earlier, this limit was Rs 7 lakh.
The government expects that taxpayers saving money through lesser income tax will plough back into the economy in the form of either consumption, savings or investments.
