February 7, 2025
Real GDP is projected to grow by 6.7% in FY26; FY25 was revised to 6.4%
Strong rabi crop prospects, industrial recovery, and household consumption fuel growth
Fixed investments to rise, driven by higher capacity utilisation and capital expenditure
CPI inflation is expected to moderate to 4.8% for FY26 with further easing in Q4 to 4.4%
In its latest Monetary Policy statement, the Reserve Bank of India (RBI) projected a robust real GDP growth of 6.7% for FY26, underpinned by a recovery in industrial activity, strong household consumption, and healthy rabi crop prospects. FY25’s GDP growth projection has been revised downward from 7% to 6.4%.
The RBI attributed the economic optimism to tax relief measures announced in the Union Budget 2025-26, along with resilient business sentiment as reflected in enterprise surveys and purchasing managers’ indices (PMIs). Strong corporate and financial sector balance sheets are expected to drive fixed investments, supported by higher capacity utilisation and the government’s continued capital expenditure push.
Despite these positive indicators, the RBI flagged risks from global geopolitical tensions, trade protectionism, volatile commodity prices, and uncertainties in financial markets. Quarterly growth estimates remain steady, with Q1 forecasted at 6.7%, Q2 at 7.0%, and Q3 and Q4 at 6.5% each.
The central bank projected full-year inflation at 4.8% for FY26, with Q4 inflation expected to ease to 4.4%. This moderation follows a decline in headline inflation in November-December 2024, driven primarily by softening food prices, particularly vegetables.
The RBI expects food inflation to ease further, supported by strong kharif output, cooling vegetable prices, and a promising rabi harvest. However, inflation risks remain due to global financial market volatility, energy price fluctuations, and potential adverse weather events.
Assuming a normal monsoon, CPI inflation for FY26 is forecast at 4.2%, with quarterly estimates of 4.5% (Q1), 4.0% (Q2), 3.8% (Q3), and 4.2% (Q4).
With steady economic growth and moderating inflation, India is poised for a balanced and resilient financial outlook for FY26 despite external challenges.
Source: Indian Express