The Reserve Bank of India (RBI) raised its growth projection for the fiscal year 2025-26 to 6.8 per cent and lowered its inflation forecast to 2.6 per cent on Wednesday. This announcement comes in the wake of a robust monsoon and changes in the Goods and Services Tax (GST) rates that aim to boost consumption.
Previously, the RBI estimated a 6.5 per cent GDP growth rate along with a 3.1 per cent inflation forecast for the same period. RBI Governor Sanjay Malhotra shared these insights during the bi-monthly monetary policy review, citing significant domestic developments amid a challenging global economic climate that have reshaped India’s growth-inflation outlook.
“Buoyed by good monsoon, the Indian economy continues to exhibit strength, showing higher growth in the first quarter of 2025-26. Concurrently, there has been a marked decrease in headline inflation,” Governor Malhotra noted. This positive trend in growth is thanks to an effective supply chain management and favorable agricultural outputs, supporting overall economic health.
The Governor emphasized that the rationalisation of GST rates is expected to have a tempered effect on inflation while stimulating growth and consumption. This strategic move is crucial as it encourages spending without putting additional pressure on prices.
However, Governor Malhotra also highlighted potential challenges, stating that US tariffs might moderate exports, negatively affecting trade dynamics in the region.
Detailed projections indicate real GDP growth in 2025-26 is now anticipated to be a steady 6.8 per cent. For specific quarters, the RBI expects growth rates of 7.0 per cent in Q2, 6.4 per cent in Q3, and 6.2 per cent in Q4. The GDP growth forecast for the first quarter of 2026-27 stands at 6.4 per cent.
In terms of inflation, the RBI reported that conditions remain benign for 2025-26, with actual numbers significantly lower than earlier predictions. The low inflation rate is primarily due to a sharp decrease in food prices, driven by improved supply channels and government interventions aimed at stabilizing the market.
Core inflation remains reasonably contained, with the latest reading at 4.2 per cent, despite ongoing price pressures on essential commodities such as precious metals. Looking ahead, the RBI projects Consumer Price Index (CPI) inflation for 2025-26 at 2.6 per cent, with quarter-specific forecasts of 1.8 per cent for both Q2 and Q3, followed by 4.0 per cent in Q4. For the first quarter of 2026-27, the CPI inflation is estimated at 4.5 per cent.
These figures reflect the RBI’s confidence in the Indian economy’s resilience, driven by favorable monsoonal conditions and policy adjustments that aim to further stabilize inflation and encourage growth.
