Worst seems to be behind, Indian economy shows signs of recovery: BNP Paribas report

New Delhi, February 23: The challenging time which persisted due to the contraction of the economic growth seems to be over, as new orders, agriculture exports, rural wages, Index of Industrial Production (IIP), steel production, auto sales and tax collections have picked up after a weak third-quarter calendar year 2024 according to a report by BNP Paribas.

The report added that tax collections also improved after a weaker third quarter, suggesting a gradual recovery despite persistent challenges.

According to the National Statistical Office (NSO), India's GDP growth is projected at 6.4 per cent for Financial Year (FY) 2025, with a more robust 6.7 per cent growth expected in the second half of the fiscal year.

The improvement is attributed to a stronger agriculture sector, even though growth remains moderate.

Food inflation, which has been persistently high throughout CY24, showed signs of moderation by the fourth quarter of the year, offering some relief

Highlighting the fiscal consolidation efforts, the report said that it remains a focus for the government as it is stabilising its capital expenditure (capex) allocations after a sharp increase.

For FY26, the government has targeted a 7.4 per cent increase in capex, signaling a commitment to investment in infrastructure while continuing to reduce subsidy allocations.

The fiscal deficit is expected to decline to 4.4 per cent of GDP in FY26, a slight improvement compared to earlier projections.

The report also highlighted focus of Union Budget FY25-26 on stimulating consumption.

It adds that the government's decision to increase the income threshold and relax tax slabs for those under the new tax regime (NTR) is set to boost disposable incomes, particularly for high-income households.

Around 30 million salaried individuals are expected to benefit from this tax bonanza, with the maximum relief amounting to Rs 110,000 per annum (USD 1,300).

According to the report, this tax relief is expected to support discretionary consumption across various sectors, including durables, automobiles, asset management, healthcare, travel, and jewelry--sectors poised to benefit from the growing affluent middle class in India.

The increased disposable income should also improve retail asset quality, particularly in unsecured loans, the report added.