The Reserve Bank of India (RBI) announced on Wednesday that it has revised its growth estimates for fiscal year 2025-26 (FY26), projecting GDP growth at 6.8 percent. Additionally, the RBI lowered its inflation forecast to 2.6 percent, attributing these changes to an above-normal monsoon and the rationalisation of Goods and Services Tax (GST) rates.
In August, the RBI initially projected a 6.5 percent GDP growth rate for FY26, along with an inflation forecast set at 3.1 percent. The latest announcement marks a significant shift in the economic outlook.
Reserve Bank Governor Sanjay Malhotra, while announcing the bi-monthly monetary policy, noted that the changing dynamics on the domestic and global fronts have influenced these new projections. “Buoyed by good monsoon, the Indian economy continues to exhibit strength by registering a higher growth in Q1 2025-26. At the same time, there has been a considerable moderation in headline inflation,” he stated.
Malhotra highlighted that the rationalisation of GST rates is likely to ease inflation while also encouraging consumption and growth. He remarked, “The impact of GST reform will play a crucial role in shaping economic activity in the coming months.” However, he cautioned that US tariffs may adversely affect India’s exports.
Taking various factors into account, Malhotra elaborated that the real GDP growth predictions for FY26 now stand at 6.8 percent, with quarterly estimates of 7.0 percent for Q2, 6.4 percent for Q3, and 6.2 percent for Q4. For the first quarter of FY27, the GDP growth rate is projected at 6.4 percent.
On the inflation front, Malhotra indicated that the conditions have remained benign thus far in 2025-26, with actual inflation rates significantly lower than previous forecasts. The low inflation is primarily due to a sharp drop in food inflation, which benefits from improved supply dynamics and efficient government interventions in the supply chain.
The Governor reported that core inflation remains stable, with the August figure recorded at 4.2 percent, despite continued price pressures observed in precious metals. He added, “CPI inflation for FY26 is now projected at 2.6 percent, with quarterly estimates of 1.8 percent for both Q2 and Q3, and 4.0 percent in Q4. The Consumer Price Index estimates for the first quarter of FY27 stand at 4.5 percent.”
This positive shift in growth and inflation projections comes as a welcome reassurance amid uncertainties in the global economy. India’s resilience through agricultural strengths and fiscal policies continues to offer a brighter perspective.
