holi-brings-economic-cheer-as-inflation-cools-emis-ease

Colours? Check. Sweets? Check. A thriving economy? Check.

 

As you stock up on gulal and festive treats, there’s an extra reason to celebrate Holi this year—the Indian economy is adding its own vibrant splash to the festivities.

 

With inflation easing, home loans set to get cheaper, and tax relief brightening financial prospects, the festival of colours is arriving with a cheerful economic backdrop.

A Sweet Surprise as Prices Ease

This Holi, the good news begins in your kitchen. With inflation cooling, festive delicacies might be a little easier on your pocket. Retail inflation in India has fallen to a seven-month low of 3.61 pc in February, down from 4.31 pc in January.

 

The biggest reason behind this drop is a sharp decline in food inflation, which makes up a significant part of the Consumer Price Index (CPI).

 

Food inflation fell from 5.97 pc to 3.75 pc in February, offering relief to consumers. Key Holi staples such as cereals and dairy products have become more affordable.

 

Cereal inflation eased to 6.10 pc from 6.24 pc, while milk and dairy products saw a slight dip from 2.85 pc to 2.68 pc. 

 

So whether you’re enjoying gujiyas, malpuas, or a chilled glass of thandai, expect your festive indulgence to remain delicious without straining your budget.

 

The Economic Survey for 2024-25 had already predicted a decline in food inflation during the last quarter of FY25, and the latest figures are in line with those expectations.

 

This relief comes just in time for Holi, ensuring that celebrations remain as lively as ever.

Cheaper EMIs Could Add to the Festivities

While Holi will soon cover the streets in bright colours, the Reserve Bank of India (RBI) has given borrowers their own reason to cheer. In a significant move, the Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 6.25 pc, marking the first rate reduction in five years.

 

For home loan borrowers, this development could bring long-awaited relief. With interest rates either rising or remaining stagnant in recent years, the possibility of lower EMIs offers financial breathing space to many.

 

Reduced loan costs could encourage homebuyers and support economic activity in the real estate sector.

 

Experts predict that this is just the beginning. According to the SBI Research Ecowrap report, the RBI could cut rates by a total of 75 basis points this fiscal year, with further reductions expected in April, June, and possibly October.

 

With inflation projected to average 4.7 pc in FY25 and remain between 4.0-4.2 pc in FY26, analysts believe the RBI has sufficient room to continue its rate-cutting cycle.

 

If these forecasts prove accurate, the coming months could see a surge in spending, investment, and overall economic momentum.

Manufacturing Gains Speed Ahead of Festivities

Holi is a time of energy and excitement, and India's industrial sector is mirroring this vibrant spirit. Industrial production growth rose to 5 pc in January, driven mainly by the manufacturing sector.

 

Government data revealed that 19 out of 23 manufacturing industries recorded positive growth in January, a notable improvement from the 16 industries that saw expansion in the previous month.

 

Higher government expenditure provided further momentum, particularly boosting industries such as petroleum products, which witnessed an 8.5 pc year-on-year increase. Capital goods grew by 7.8 pc, while consumer durables registered a 7.2 pc rise.

 

Infrastructure and construction goods also performed strongly, reflecting a resilient economic outlook. With rural demand recovering and non-oil exports rising, the industrial sector appears well-positioned for steady growth in the months ahead.

A Holi Gift from the Finance Minister

The festival spirit arrived early in February when Finance Minister Nirmala Sitharaman announced a significant tax relief package in the Union Budget 2025-26. Under the new tax regime, incomes up to ₹12 lakh are now tax-free, a move expected to benefit middle-class Indians.

 

Moody’s Ratings predicts that this tax relief will provide a much-needed boost to consumption, particularly after months of cautious spending.

 

With private consumption accounting for nearly 60 pc of India’s GDP, an increase in disposable income is likely to improve consumer sentiment and spending across various sectors.

 

Industry experts, including Godrej Consumer Products’ CFO Aasif Malbari, believe that this move will drive demand, benefiting multiple industries.

 

The government estimates that between 25-30 million taxpayers will gain from these tax cuts, saving approximately ₹1 lakh annually. 

 

More savings mean higher spending potential, which is positive news for both businesses and consumers.

A Wage Hike to Brighten Economic Prospects

Beyond tax cuts, another major economic boost is on the horizon. The upcoming revision under the 8th Central Pay Commission in January 2026 is expected to add around $50 billion to the economy.

 

This will impact approximately 3.1 crore people, including 1.8 crore government employees and 1.3 crore pensioners.

 

While much of this additional income will likely go into savings, a portion will be directed towards consumption, helping to sustain economic growth.

 

UBS forecasts that the wage increase could range between 15-20 pc, slightly lower than the 24 pc hike seen in the last cycle but still significant enough to influence spending patterns. The final percentage will depend on the fitment factor, a crucial element in salary revisions.

 

A well-balanced wage hike could provide temporary GDP growth, but an excessively steep increase (above 40 pc) might raise inflationary pressures, potentially prompting the RBI to adjust its monetary policy accordingly.

Trade Uncertainty Casts a Shadow

While the overall economic picture remains positive, potential challenges remain, particularly in international trade. Former US President Donald Trump’s proposed reciprocal tariffs, set to take effect on April 2, could impact India’s exports significantly.

 

Trump recently criticised India’s high tariff rates, claiming that they make it “next to impossible” for American companies to sell goods in the Indian market. His administration has pledged to impose tariffs that match those set by US trading partners.

 

India exported goods worth nearly $74 billion to the US in 2024, and analysts estimate that additional tariffs could cost the country up to $7 billion annually. Key sectors such as jewellery, pharmaceuticals, and petrochemicals may face the most pressure.

 

While the Indian government is working to mitigate the impact of these tariffs, businesses will need to navigate this uncertainty carefully.

A Festival Full of Economic Optimism

Despite global challenges, India’s economic outlook remains bright this Holi. With inflation easing, tax cuts putting more money in people’s hands, and the potential for further interest rate reductions, the conditions are set for sustained economic momentum.