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October 1, 2025 2:18 PM IST

GDP growth | GDP forecast | Sanjay Malhotra | RBI projection | FY26 growth | FY27 outlook | Indian Economy | RBI

RBI projects 6.8% GDP growth for 2025-26, inflation expected at 2.6%

The Reserve Bank of India (RBI) on Wednesday said that economic activity has remained resilient, with real GDP growth surprising on the upside at 7.8 per cent and gross value added (GVA) at 7.6 per cent in Q1 of 2025-26. High-frequency indicators suggest that domestic economic momentum is expected to continue in Q2.

RBI Governor Sanjay Malhotra said that an above-normal monsoon, good progress of kharif sowing, and adequate reservoir levels are likely to support agriculture and rural demand. Buoyancy in the services sector, steady employment conditions, and rationalisation of GST are expected to further strengthen domestic demand. Rising capacity utilisation, supportive financial conditions, and improving domestic demand are also expected to sustain fixed investment.

However, the Governor cautioned that ongoing tariff and trade uncertainties, prolonged geopolitical tensions, and volatility in international financial markets pose downside risks. Structural reforms, including GST streamlining, are expected to mitigate some of these external challenges. Taking all factors into account, the RBI projected real GDP growth for 2025-26 at 6.8 per cent, with quarterly estimates of 7 per cent in Q2, 6.4 per cent in Q3, and 6.2 per cent in Q4. Growth for Q1 of 2026-27 is projected at 6.4 per cent, with risks evenly balanced.

On inflation, the RBI said that conditions have remained benign, with actual outcomes significantly lower than previous projections. Low inflation is attributed mainly to a sharp fall in food prices and effective supply chain management by the government. Core inflation remained contained at 4.2 per cent in August despite price pressures on precious metals. The GST rate rationalisation is expected to reduce prices of several items in the consumer price index basket. CPI inflation for 2025-26 is now projected at 2.6 per cent, with Q2 and Q3 at 1.8 per cent and Q4 at 4 per cent. Inflation for Q1 of 2026-27 is projected at 4.5 per cent, with risks evenly balanced.

On the external front, India’s current account deficit moderated to US$ 2.4 billion (0.2 per cent of GDP) in Q1 of 2025-26, compared with US$ 8.6 billion (0.9 per cent) in the same period last year, due to a higher net services surplus and robust remittance inflows. Services exports, particularly software and business services, showed strong growth in July-August 2025. Net foreign direct investment reached a 38-month high in July 2025, while net Foreign Portfolio Investment recorded outflows of US$ 3.9 billion so far this year. India’s foreign exchange reserves stood at US$ 700.2 billion as of September 26, sufficient to cover more than 11 months of merchandise imports.

 

 

Last updated on: 1st Oct 2025