Reserve Bank of India (RBI) on Wednesday reasserted its GDP growth forecast of 6.5% for the financial year 2025–26, attributing robust rural demand supported by a good monsoon and consistent public spending in high-value infrastructure projects as major sources of economic momentum, in spite of global uncertainty.
RBI Governor Sanjay Malhotra pointed out that the domestic economy remains to be strengthened by strengthening macroeconomic conditions.
"Continuing above normal southwest monsoon, soft inflation, increasing capacity utilization and favorable financial conditions are sustaining domestic economic activity. Favorable monetary, regulatory and fiscal policies like strong government capital spending should also support demand. The services sector is likely to remain firm, with construction and trade continuing their growth momentum in the months ahead," Malhotra added after the Monetary Policy Committee (MPC) meeting.
The central bank left its quarterly GDP forecasts for FY26 unchanged, with expansion expected at 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. For the first quarter of FY27, growth is predicted at 6.6%.
Malhotra, however, highlighted uncertainty about external demand, citing risks from ongoing tariff measures, changing trade negotiations, and ongoing geopolitical tensions.
The prospects for external demand are uncertain in the face of continued tariff announcements and trade negotiations," he noted. "The headwinds coming from extended geopolitical tensions, continued global uncertainties, and instability in global financial markets threaten the growth outlook."
Domestically, the governor noted ongoing resilience, with economic activity at the central bank's expectations.
"Private consumption, supported by rural demand, and fixed investment, supported by resilient government capex, continue to drive economic activity," he stated.
On the supply side, RBI noted that kharif sowing has got a boost from the benign monsoon, which is also contributing towards replenishing reservoirs and bolstering farm production. The construction and services sectors continue to be major growth contributors. Nevertheless, the industrial sector has had uneven performance, with production from electricity and mining being a drag.
Despite some moderation in global risks recently, the international landscape remains challenging, Malhotra warned.
While financial market volatility and geopolitical uncertainties have eased somewhat from their recent highs, trade negotiation difficulties persist," he stated. He further noted that while the IMF has upgraded its outlook for world growth, overall momentum is still subdued. Disinflation trends are also decelerating worldwide, with some advanced economies now actually seeing a pick-up in inflation levels.
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