A Focus on Indirect Support
The Indian government is likely to prioritize indirect policy measures over direct cash transfers to stimulate demand in the upcoming Union Budget 2025-26. This decision comes amidst concerns about a potential economic slowdown and moderation in urban consumption.
Policymakers believe that existing schemes, including direct cash transfers and state-level initiatives, are sufficient to address current demand needs. They anticipate a cyclical rebound in urban demand next year, driven by the replacement of consumer durables and electronics purchased during the pandemic.
The government remains optimistic about rural demand, fueled by good monsoon rains and an expected overall demand pick-up in the coming months. This optimism comes despite a downward revision of India's growth forecast to 6.7% for FY26 by credit rating agency S&P Global.
While the Finance Ministry's Monthly Economic Review acknowledges external uncertainties, it highlights India's resilience and the steady growth of demand. However, RBI surveys indicate a more cautious outlook among urban consumers and manufacturers regarding employment and hiring.
The government's focus on indirect support measures reflects its confidence in the existing policy framework and its commitment to fiscal prudence. This approach aims to stimulate demand without resorting to direct cash transfers, which could potentially exacerbate inflationary pressures.