The Reserve Bank of India (RBI) on Wednesday raised its GDP growth projection for FY26 to 6.8 percent and lowered its inflation forecast to 2.6 percent. This revision reflects the effects of an above-normal monsoon and effective changes in Goods and Services Tax (GST) rates.
In its previous assessment in August, the RBI estimated a growth rate of 6.5 percent for the fiscal year, alongside an inflation forecast of 3.1 percent. However, recent economic indicators prompted the central bank to adjust its estimates.
During the announcement of the bi-monthly monetary policy meeting, RBI Governor Sanjay Malhotra highlighted significant changes in both domestic and global economic conditions that influenced the growth and inflation outlook for India.
“Buoyed by good monsoon, the Indian economy continues to exhibit strength, registering higher growth in Q1 FY26. At the same time, we have witnessed a considerable moderation in headline inflation,” Malhotra stated.
The Governor emphasized that the rationalization of GST rates is expected to have a calming effect on inflation, while also stimulating consumption and promoting growth across sectors.
Nonetheless, he cautioned that tariffs imposed by the United States could dampen export growth, potentially offsetting some domestic gains.
“Considering all these factors, our updated forecast suggests a real GDP growth of 6.8 percent for FY26, with Q2 projected at 7.0 percent, Q3 at 6.4 percent, and Q4 at 6.2 percent. For the first quarter of FY27, we estimate GDP growth at 6.4 percent,” he added.
Governor Malhotra also pointed out that inflation conditions have remained benign throughout FY26, with actual inflation rates significantly lower than initial projections. Low inflation rates primarily stem from a sharp decline in food prices, supported by enhanced supply prospects and government measures effectively managing supply chains.
Core inflation has remained stable, recorded at 4.2 percent in August, despite ongoing price pressures in precious metals. “Looking ahead, CPI inflation for FY26 is now projected at 2.6 percent, with forecasts of 1.8 percent for both Q2 and Q3, and 4.0 percent for Q4,” Malhotra explained. Additionally, the CPI-based inflation for the first quarter of FY27 is projected at 4.5 percent.
This positive outlook from the RBI signals confidence in the Indian economy’s resilience and reflects successful management amidst global challenges. With effective policy responses, India is primed to sustain growth momentum while keeping inflation in check.
