The Reserve Bank of India (RBI) on Wednesday announced a significant upward revision of its gross domestic product (GDP) growth projection for the fiscal year 2025-26 to 6.8% and a downward adjustment of the inflation forecast to 2.6%. This decision correlates closely with the effects of an above-normal monsoon and the ongoing rationalisation of Goods and Services Tax (GST) rates.
In August of this year, the RBI had estimated the GDP growth rate at 6.5% for the same fiscal period, alongside an inflation target of 3.1%. The recent adjustments reflect a changing economic environment that demands a review of earlier forecasts.
During the bi-monthly monetary policy review, RBI Governor Sanjay Malhotra articulated that the Indian economy is showing resilience, bolstered by favourable weather conditions. “Buoyed by good monsoon, the Indian economy continues to exhibit strength by registering a higher growth in Q1 2025-26. At the same time, there has been a considerable moderation in headline inflation,” he stated.
The rationalisation of GST rates is expected to have a calming effect on inflation, while simultaneously fuelling consumption and overall economic growth. However, Malhotra cautioned that rising tariffs in the United States could potentially dampen export performance.
“Taking all these factors into account, real GDP growth for 2025-26 is now projected at 6.8%, with quarterly estimates set at 7.0% for Q2, 6.4% for Q3, and 6.2% for Q4,” he elaborated. The GDP growth for the first quarter of 2026-27 stands estimated at 6.4%.
Moreover, Malhotra highlighted that inflation has remained quite manageable throughout 2025-26, with actual rates falling significantly below initial predictions. The primary factor contributing to this low inflation rate has been a marked decrease in food inflation, supported by better supply conditions and efficient government interventions in supply chain management.
He also noted that core inflation has remained under control, with August’s rates held at 4.2%, despite persistent price pressures on precious metals. “CPI inflation for 2025-26 is now projected at 2.6%, with 1.8% in Q2, 1.8% in Q3, and 4.0% in Q4,” Malhotra added. Projections indicate that the Consumer Price Index (CPI) based inflation for the initial quarter of 2026-27 will be approximately 4.5%.
The news of these projections heralds a potentially stable economic environment for India in the coming fiscal years, providing a cautiously optimistic outlook amid global economic uncertainties.
