The recent tax relief in the Union Budget and the Reserve Bank of India’s (RBI) first policy rate cut in five years will trigger a consumption-driven growth cycle, finance minister Nirmala Sitharaman said on Saturday, highlighting the “good coordination” between fiscal and monetary policies.
“Yes, I would expect that,” Sitharaman said when asked about revival in private investments following the ₹1 lakh crore direct tax relief announced in the Budget on February 1 and RBI’s 25 basis point rate cut to 6.25% on February 7.
The finance minister said preliminary inputs suggest positive momentum. “Orders for fast moving consumer goods for April to June are already getting booked. Industry is clearly seeing signs of possible recovery of consumption and many are looking at reviewing their capacity utilisation,” she told reporters after her customary post-budget interaction with RBI’s Central Board of Directors.
The Budget emphasised “demand” as a key support pillar for achieving ‘Viksit Bharat’ by announcing zero income tax up to ₹12 lakh under the new regime. Experts estimate that direct and indirect tax reliefs will leave over ₹1.26 lakh crore in people’s hands to boost consumption.
The moves follow the Economic Survey’s call for fiscal and monetary measures to boost growth, which it projected between 6.3-6.8% for 2025-26, lower than the government’s 6.4% estimate for 2024-25. This marks a significant slowdown from 8.2% in FY24.
{{/usCountry}}The moves follow the Economic Survey’s call for fiscal and monetary measures to boost growth, which it projected between 6.3-6.8% for 2025-26, lower than the government’s 6.4% estimate for 2024-25. This marks a significant slowdown from 8.2% in FY24.
{{/usCountry}}Sitharaman emphasised the importance of coordination between fiscal and monetary policies while maintaining a balance between inflation and growth. “Both fiscal and monetary policies are like two wheels of the same vehicle, hence their coordination would benefit both the economy and the people,” she said. The finance minister noted there has been no turf war between the government and RBI, citing their excellent coordination during the Covid period that helped India’s economic recovery. She said this synergy would continue.
RBI Governor Sanjay Malhotra, who presided over his first Monetary Policy Committee meeting last week, said the central bank remains focused on ease of credit. He announced that RBI is setting up a Unified Lending Platform (ULI) to facilitate frictionless credit delivery, an initiative first revealed at the RBI@90 Global Conference in August 2024.
On the rupee’s fluctuation against the dollar, Malhotra said market forces determine its value and RBI isn’t concerned about daily movements. “We focus on medium to long-term value,” he said, noting that a 5% depreciation impacts domestic inflation by 30-35 basis points. The central bank factored in the current rupee-dollar rate of ₹87 while projecting growth and inflation for FY26.
The RBI expects GDP to expand by 6.7% in 2025-26, with quarterly growth estimates of 6.7%, 7%, 6.5% and 6.5%. It projects inflation at 4.2% for the year, the closest to its 4% target since India adopted inflation targeting in 2016.
Malhotra assured adequate liquidity support for the banking system. “We will be very watchful, alert and nimble in responding to the banking system’s liquidity requirements, both transient and durable,” he said.
The rate cut is expected to make corporate and retail loans cheaper, though the RBI governor indicated it could take up to two quarters for the reduction to be fully transmitted through the banking system.