The Reserve Bank of India (RBI) has reduced its GDP growth estimate for the fiscal 2025–26 to 6.5%, a reduction of 20 basis points from the previous estimate of 6.7%. RBI Governor Sanjay Malhotra cited global policy changes and rising trade uncertainties, especially in view of the recent tariff increases imposed by the United States.
Uncertainty itself also acts as an economic growth brake by affecting investment and spending decisions across firms and households," Malhotra observed. "A deceleration in global growth on account of increased trade tensions can also hurt India's domestic growth. High tariffs will also likely have a negative impact on net exports.
He stressed that the exact scope of these effects is unknown owing to various factors, including how relative tariffs materialize, the elasticity of India's export and import demand, and future government actions such as the mooted Foreign Trade Agreement with America.
Considering these developments, the RBI now predicts real GDP growth during 2025–26 at 6.5%, with quarterly projections as Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%. Malhotra said that although the risks are predominantly balanced around these numbers, global volatility introduces significant uncertainty to the outlook.
India's economy is projected to grow at 6.5% in 2024–25, capitalizing on the robust 9.2% growth of the previous year. Agriculture's outlook continues to be optimistic, supported by favorable reservoir levels and sound crop production.
On the industrial side, manufacturing is recovering on the back of robust business sentiment, and services continue to be a source of resilience. From a demand angle, rural consumption will be driven by agricultural strength, and urban consumption is gathering steam, especially in discretionary items.
Investment activity is also increasing, driven by continued capacity utilization, government-infused infrastructure expenditure, and the enhanced financial health of corporations and banks. While merchandise exports could be challenged by continued global disruptions, services exports are projected to continue steady growth.
Malhotra did warn, though, that chronic headwinds from the global trade environment may continue to create downside risks to India's economic path.
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