● Efforts to Boost Consumption: The government is proactively addressing the recent economic slowdown by implementing measures aimed at boosting consumption. These include cuts in personal income tax rates, reductions in interest rates, direct benefit transfers (DBTs), and now restructuring of the Goods and Services Tax (GST). The Prime Minister has hinted at reducing GST rates and possibly eliminating the existing 12% and 25% slabs.

● Slowing Loan Growth: System-wide loan growth has started to decelerate, despite the Reserve Bank of India’s (RBI) efforts to stimulate credit by cutting interest rates more aggressively and sooner than expected. Commentary from Non-Banking Financial Companies (NBFCs) continues to highlight a broad-based slowdown. Early signs of asset quality stress are also emerging, particularly in the MSME segment and affordable housing loans.

● Impact of US Tariffs Brings Uncertainty: While the US government’s 90-day suspension of reciprocal tariffs for most countries— excluding China—offered temporary relief to Indian markets, the recent imposition of a 25% tariff on Indian goods, along with penalties, came as a surprise. Additionally, comments from US officials suggesting the possibility of further sanctions on India add to the uncertainty.

● Outlook: The early and intense monsoon has negatively impacted short-term demand. Meanwhile, the ongoing slowdown in central government capital expenditure continues to weigh on corporate earnings and rising disposable incomes. However, recent policy initiatives—such as DBTs, personal income tax cuts, and potential GST rate reductions—should help support a gradual recovery in consumption. These efforts are further supported by RBI’s rate and CRR cuts to enhance system liquidity. We expect 1HFY26 continues to remain weak, however recovery is expected slow and gradual starting 2HFY26.