The Indian economy is likely to get a boost from rural demand picking up and a government-announced tax relief that is expected to support urban consumption, the central bank said in its monthly bulletin on Wednesday.

India’s latest budget introduces one of the most significant tax cuts in decades, boosting disposable income & supporting domestic consumption in key sectors like FMCG, retail & automobiles.

According to the Reserve Bank of India’s (RBI) monthly State of the Economy report, the Indian economy is on a recovery trajectory in the second half of the current financial year (H2FY25). The report also highlights a growing likelihood that the policy repo rate cut during the February monetary policy review will stimulate domestic demand.

India’s economy has recovered its lost momentum and consumption demand may improve on the back of moderating inflation and tax relief, the Reserve Bank of India said in its monthly bulletin. The government’s budget balances fiscal consolidation and growth objectives by focusing on capital expenditure alongside measures to support consumption,