The Reserve Bank of India (RBI) announced on Wednesday that it has raised its GDP growth projection for FY26 to 6.8% while simultaneously lowering its inflation forecast to 2.6%. This decision comes in light of an above-normal monsoon season and the recent rationalization of Goods and Services Tax (GST) rates.
Previously, in August, the RBI had projected a growth rate of 6.5%%. Simultaneously, the central bank had offered an inflation forecast of 3.1%%. The new estimates reflect a positive shift in the economic landscape.
During the announcement of the bi-monthly monetary policy, RBI Governor Sanjay Malhotra highlighted that substantial developments within India, despite a rapidly evolving global economic environment, have reshaped the growth-inflation dynamics. “Buoyed by good monsoon, the Indian economy continues to exhibit strength,” he stated.
Malhotra emphasized that the Indian economy recorded a higher growth rate in the first quarter of FY26, a trend that continues to provide hope for economic stability. He attributed the moderation in inflation primarily to a significant drop in food prices, strengthened by improved supply chains and government interventions.
The Governor noted that the rationalization of GST rates is expected to further stabilize inflation while also promoting consumption and economic growth. “This reform is likely to have a sobering impact on inflation,” he added, indicating that consumer purchasing power might improve as a result.
However, he warned that certain international factors, like the US tariffs, could dampen India’s export potential, indicating a complex interaction between domestic growth initiatives and external pressures.
Taking a closer look at the projections, the RBI estimates real GDP growth for future quarters to be: 7.0%% in Q2, 6.4%% in Q3, and 6.2%% in Q4 of FY26. The growth rate for the first quarter of FY27 is set at 6.4%%.
On inflation, Malhotra reported that the rates have stayed benign for FY26 thus far, with actual numbers coming in significantly lower than predictions. “Core inflation remains largely contained, with an August reading at 4.2%% despite ongoing price pressures in precious metals,” he revealed.
With future inflation projections showing 1.8%% for both Q2 and Q3, and a slight increase to 4.0%% in Q4 of FY26, the RBI urges a cautious yet optimistic approach regarding consumer price stability. The CPI-based inflation forecast for the first quarter of FY27 sits at 4.5%%.
The RBI’s optimistic outlook for GDP growth and inflation demonstrates the institution’s commitment to fostering stability in the Indian economy while navigating the complexities presented by global economic conditions.
