The Reserve Bank of India (RBI) has upgraded its GDP growth projection for the fiscal year 2025-26 to 6.8 percent and lowered its inflation forecast to 2.6 percent. This decision, reported on Wednesday, comes in response to the impacts of an above-normal monsoon and recent adjustments in Goods and Services Tax (GST) rates.
In August, the RBI had anticipated a GDP growth rate of 6.5 percent for the current fiscal year, alongside an inflation estimate of 3.1 percent. Governor Sanjay Malhotra, announcing the bi-monthly monetary policy, attributed the revision to significant domestic developments amid global economic changes. He highlighted that the Indian economy has shown resilience, reflecting a growth uptick in the first quarter of 2025-26.
Malhotra noted, “Buoyed by good monsoon, the Indian economy continues to exhibit strength. There has been a considerable moderation in headline inflation.” He explained that the rationalisation of GST rates likely contributes to lowering inflation while also stimulating consumption.
However, Malhotra cautioned that U.S. tariffs could have a restraining effect on exports. He stated, “Taking all these factors into account, real GDP growth for 2025-26 is now projected at 6.8 percent, with a breakdown of 7.0 percent in Q2, 6.4 percent in Q3, and 6.2 percent in Q4.” Furthermore, he projected GDP growth for the first quarter of 2026-27 at 6.4 percent.
In terms of inflation, Malhotra reported that conditions remain benign throughout 2025-26, with actual inflation figures significantly lower than expectations. A marked decrease in food inflation, aided by enhanced supply prospects and effective supply chain management by the government, primarily drove this low inflation.
Malhotra added, “Core inflation remained largely contained, with the August reading at 4.2 percent, even as prices for precious metals continue to exert pressure.” For the Consumer Price Index (CPI), he provided inflation projections of 2.6 percent for 2025-26, with quarterly expectations of 1.8 percent in Q2, 1.8 percent in Q3, and 4.0 percent in Q4. Additionally, CPI inflation for the first quarter of 2026-27 is expected to be around 4.5 percent.
This revised outlook reflects the RBI’s proactive approach in responding to changing economic conditions, leveraging favorable climate patterns, and policy adjustments to foster economic stability.
