Mumbai:
In a significant move to bolster economic growth, the Reserve Bank of India (RBI) has raised India’s real GDP growth forecast to 6.7% for the fiscal year 2025-26. This optimistic projection is underpinned by healthy rabi crop prospects and an anticipated recovery in industrial activity, as highlighted by RBI Governor Sanjay Malhotra. The decision comes on the heels of the first RBI policy meeting under Governor Malhotra and follows the presentation of the Union Budget 2025-26.
The RBI’s revised GDP growth estimate for FY26 marks a slight improvement from the 6.4% growth anticipated for FY25. This growth is expected to be driven by robust agricultural output, particularly from the rabi crop season, and a gradual recovery in industrial activity. Quarter-wise, the RBI projects GDP growth at 6.7% for Q1, 7% for Q2, and 6.5% for both Q3 and Q4 of FY26.
Household consumption is anticipated to remain robust, buoyed by the tax relief measures outlined in the Union Budget 2025-26. Additionally, fixed investment is projected to recover, supported by higher capacity utilization, healthy balance sheets of financial institutions and corporates, and the government’s continued emphasis on capital expenditure.
In a bid to support economic growth, the RBI has cut the repo rate by 25 basis points to 6.25%, marking the first rate cut since May 2020. This move aligns with the RBI’s neutral monetary policy stance, aimed at achieving a medium-term CPI inflation target of 4% within a band of +/- 2%.
The real GDP growth for FY25 is estimated at 6.4%, a softer expansion compared to the previous year’s 8.2% growth. The services sector and a recovery in the agriculture sector are key drivers of this growth, although industrial growth remains subdued.
CPI inflation is projected to moderate to 4.4% in the fourth quarter of FY25 and further to 4.2% in FY26. The RBI is closely monitoring the depreciation of the rupee and is taking steps to stabilize the Indian currency amidst global financial market uncertainties.
Despite the positive outlook, the RBI acknowledges risks to the economic growth trajectory, including geopolitical tensions, protectionist trade policies, and volatility in international commodity prices and financial markets. These factors continue to pose significant downside risks to the economic outlook.
