The Reserve Bank of India (RBI) announced on Wednesday its revised projections for the fiscal year 2025-26, increasing the GDP growth estimate to 6.8% and reducing the inflation forecast to 2.6%. This upward revision reflects positive agricultural conditions stemming from an above-normal monsoon and the recent rationalisation of GST rates.
Earlier in August, the RBI had set the GDP growth rate at 6.5% for FY26 alongside an inflation estimate of 3.1%. However, significant developments in both domestic and global economies have led RBI officials to reassess these figures.
During the bi-monthly monetary policy announcement, RBI Governor Sanjay Malhotra stated that the Indian economy demonstrates resilience, achieving impressive growth in the first quarter of 2025-26. He noted a substantial moderation in inflation levels as well.
“Buoyed by good monsoon, the Indian economy continues to exhibit strength. We have seen a notable increase in growth while headline inflation has considerably dropped,” Malhotra remarked.
On the impact of GST rate adjustments, he highlighted its potential to ease inflation further while also stimulating growth through increased consumption. However, he cautioned that US tariffs may negatively impact export performance.
Considering these variables, the RBI now estimates real GDP growth for 2025-26 will be 6.8%, with specific quarterly projections of 7.0% for Q2, 6.4% for Q3, and 6.2% for Q4. Looking into the next fiscal year, the first quarter of 2026-27 is projected at 6.4%.
Malhotra further emphasised the benign inflationary environment, with actual inflation outcomes significantly lower than previous estimates. A predominant factor contributing to this low inflation is the sharp decline in food prices, attributed to better supply conditions and government interventions aimed at effectively managing the supply chain.
The core inflation rate, reflecting prices excluding volatile items like food and fuel, has also remained stable. As of August, core inflation was at 4.2%, despite persisting price pressures, particularly on precious metals.
For the current fiscal year, the Consumer Price Index (CPI) inflation is now projected at 2.6%, with breakdowns indicating 1.8% for both Q2 and Q3, with a slight increase to 4.0% in Q4. The CPI-based inflation outlook for the first quarter of 2026-27 is set at 4.5%, as calculated by the RBI.
This optimistic outlook boosts consumer confidence and may encourage investment in various sectors of the economy. With ongoing global economic uncertainties, the RBI’s proactive measures aim to sustain economic growth while keeping inflation under control.
