PRIVATE INVESTMENT CYCLE TO GAIN MOMENTUM POST CONSUMPTION BOOST IN BUDGET, RBI RATE CUT: FM SITHARAMAN

Private investment in India is expected to pick up, driven by the consumption boost from recent tax cuts in the Union budget and the Reserve Bank of India’s (RBI) latest rate cut, finance minister Nirmala Sitharaman said on Saturday.

Addressing a press conference after her customary address to the RBI’s central board of directors, Sitharaman said that she anticipates a revival in the private investment cycle in the coming months. She attributed this outlook to feedback received from various sources, including business leaders.

Read this | Budget 2025 | A ₹1 trillion largesse for India's middle class

“(A)necdotal evidence suggests a pick up in investment activity. I'm not relying on them, but these are since after the budget being heard from different sources, and most of it seem to be on the same page that the orders for fast moving consumer goods (FMCG) for the period April to June are already getting booked, and industry is clearly seeing the signs of a possible recovery of consumption," Sitharaman said.

"As a result, many of them are looking at reviewing their capacity utilization itself. From these limited anecdotal inputs you can safely see that the triggers for a consumption driven cycle is very clearly being felt by those who have to take the investment decisions. So I see it as a positive sign, and with yesterday's decision of the RBI, I'm sure together, things can move in alignment and in the required traction that we need in this course,” the finance minister said.

Read this | Retail vs institutional investors: Who best read the consumption tea leaves?

Sitharaman confirmed that the Union Cabinet approved the new Income Tax Bill on Friday. However, she refrained from specifying a timeline for its implementation, stating that the bill must first go through multiple stages—including parliamentary review and a fresh Cabinet approval—before final clearance.

Addressing concerns over whether recent customs duty changes were influenced by global trade tensions, Sitharaman clarified that the revisions were part of a two-year effort under the Aatmanirbhar Bharat initiative, rather than a reaction to external developments, including US tariff policies.

She also emphasized that India’s monetary and fiscal policies work in tandem to maximize economic benefits without encroaching on each other’s domains.

On the draft project financing norms issued last year—which propose higher provisioning for infrastructure projects during their construction phase—RBI governor Sanjay Malhotra said that the framework is still under review.

“It is not getting implemented from 31 March 2025, and sufficient time would be given for this. Also, a phased period for its implementation is also being considered,” the RBI governor said.

The RBI’s draft guidelines on Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances — Projects Under Implementation from May 2024 propose a phased 5% standard asset provision to cover risks during the construction phase of infrastructure projects.

Malhotra also addressed concerns about inflation, noting that the RBI remains vigilant.

"(A)s per our estimates 5% depreciation of rupee leads to 30-35 basis point rise in inflation and that had been kept in mind. Depreciation of rupee is driven by uncertainties which have come about because of the global developments and especially due to Trump related tariffs. Hopefully that should settle down and it will help us in downward movement of inflation,” Malhotra.

He emphasized that the RBI does not target a specific level for the rupee and that short-term volatility should not be overinterpreted.

Also read | Mint Primer: Is the rupee on course for a bottomless fall?

On cryptocurrency regulations, Malhotra said that a working group is studying the issue, and a discussion paper is in the pipeline.

2025-02-08T09:39:48Z