The Reserve Bank of India (RBI) has raised its GDP growth projection for the fiscal year 2025-26 to 6.8% while simultaneously lowering its inflation forecast to 2.6%. This adjustment follows favorable domestic conditions, specifically an above-normal monsoon and the recent rationalization of Goods and Services Tax (GST) rates.
In its earlier forecast from August, the RBI had estimated the GDP growth rate at 6.5% with an inflation estimate of 3.1%. The updated projections reflect significant developments on the domestic economic front, which RBI Governor Sanjay Malhotra described as altering the dynamics of growth and inflation in India.
During the announcement of the bi-monthly monetary policy, Malhotra emphasized the positive impact of a robust monsoon on the Indian economy, which has shown resilience by registering higher growth in the first quarter of 2025-26. “Buoyed by good monsoon, the Indian economy continues to exhibit strength. At the same time, there has been a considerable moderation in headline inflation,” he stated.
Malhotra attributed the low inflation rates to a notable decline in food inflation, driven by improved supply chains and government interventions. “Low inflation is primarily a result of effective management of supply chains, which has improved food supply prospects,” he added. Core inflation remained stable, with an August reading of 4.2%, though price pressures on precious metals persist.
The RBI’s growth forecast includes quarterly projections for 2025-26, with Q2 anticipated at 7.0%, Q3 at 6.4%, and Q4 expected to be 6.2%. For the first quarter of 2026-27, the RBI estimated GDP growth at 6.4%.
Moreover, the revised inflation outlook presents CPI inflation for the fiscal year at 2.6%, with Q2 and Q3 both expected at 1.8%, and Q4 projected at 4.0%. The CPI-based inflation for the first quarter of 2026-27 is projected to be 4.5%.
Looking ahead, Malhotra cautioned about external factors that could influence this growth trajectory, particularly highlighting the potential impact of US tariffs on Indian exports. Despite these concerns, the RBI remains optimistic about domestic economic performance and inflation management.
The adjustments in both growth and inflation figures paint a picture of an economy on the rebound, aided by effective policy measures. The Reserve Bank’s proactive approach aims to stimulate consumption and steady growth while keeping inflation in check.