The Reserve Bank of India (RBI) on Wednesday announced a significant revision in its economic forecasts, projecting the gross domestic product (GDP) growth rate for the fiscal year 2025-26 at 6.8 percent. It also lowered the 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 had estimated a 6.5 percent growth rate for the same fiscal year, along with an inflation forecast of 3.1 percent. The recent adjustments indicate a more optimistic outlook, reflecting crucial developments on both domestic and international fronts.
During the announcement of the bi-monthly monetary policy, RBI Governor Sanjay Malhotra highlighted the strength of the Indian economy, which demonstrated growth during the first quarter of FY26. Malhotra noted that the good monsoon season has positively influenced economic performance. “We observe a higher growth in Q1 2025-26, alongside a considerable moderation in headline inflation,” he stated.
Regarding the impact of GST rationalisation, Malhotra emphasized its potential to encourage consumption and spur economic growth while simultaneously having a calming effect on inflation. He acknowledged that while domestic factors are promising, global economic conditions, including recent US tariffs, could dampen export performance.
“Considering these diverse elements, we have revised the real GDP growth for 2025-26 to 6.8 percent, with projections of 7.0 percent for Q2, 6.4 percent for Q3, and 6.2 percent for Q4,” he explained. The GDP growth rate for the initial quarter of 2026-27 is expected to be around 6.4 percent.
Malhotra also noted that inflation conditions remain under control, with actual inflation outcomes significantly lower than previous predictions. “The low inflation levels can be primarily traced to a sharp decline in food prices, driven by improved supply chains and effective government interventions,” he elaborated.
The core inflation rate has stayed relatively unchanged, with August figures reporting at 4.2 percent. This stability exists despite ongoing pricing pressures on precious metals. The RBI’s revised Consumer Price Index (CPI) inflation forecast for 2025-26 now indicates 2.6 percent inflation, with quarterly estimates showing 1.8 percent for Q2, 1.8 percent for Q3, and 4.0 percent for Q4. Looking ahead, the CPI inflation rate for the first quarter of 2026-27 is projected at 4.5 percent.
This revised economic outlook signals the resilience of the Indian economy in navigating both domestic challenges and external pressures. Analysts and economists will closely monitor these developments, as they play a pivotal role in shaping monetary policy and influencing market confidence in the upcoming fiscal year.
