The Reserve Bank of India (RBI) has uplifted its GDP growth forecast for FY26 to 6.8 percent and reduced its inflation prediction to 2.6 percent, a move attributed to a robust monsoon and the recent rationalisation of GST rates. Governor Sanjay Malhotra announced these updates during the bank’s bi-monthly monetary policy review.
This marks a change from the previous estimate of 6.5 percent GDP growth and 3.1 percent inflation issued in August. The enhanced projections reflect the RBI’s acknowledgment of significant domestic developments that are reshaping India’s economic landscape.
Governor Malhotra highlighted India’s growing economic strength, credited largely to positive weather conditions. “Buoyed by a good monsoon, the Indian economy continues to exhibit strength by registering a higher growth in Q1 2025-26,” he stated. He also noted a considerable moderation in headline inflation.
Addressing the impact of GST rate adjustments, Malhotra acknowledged their potential to reduce inflation while simultaneously enhancing consumption and overall growth. However, he cautioned that US tariffs could dampen export performance.
Taking various economic indicators into account, the RBI now estimates the quarter-wise GDP growth: a substantial 7.0 percent for Q2, 6.4 percent for Q3, and 6.2 percent for Q4. Furthermore, the bank projects the GDP growth for the first quarter of FY27 to be around 6.4 percent.
During the current fiscal year, inflation conditions have proven to be less severe than expected, with observed figures dropping significantly below earlier forecasts. “Low inflation is primarily attributed to a sharp fall in food inflation, supported by improved supply conditions,” Malhotra explained.
Despite ongoing price pressures, especially for precious metals, core inflation remained under control, recording 4.2 percent in August. The Consumer Price Index (CPI) inflation prediction for FY26 has now been modified to 2.6 percent, with quarterly forecasts of 1.8 percent for both Q2 and Q3, and increasing to 4.0 percent in Q4. For the first quarter of FY27, the CPI inflation is projected at 4.5 percent.
These revisions indicate the RBI’s confidence in the Indian economy’s resilience and its response to both domestic and global economic challenges. As the country prepares for the remainder of the fiscal year, stakeholders in various sectors are keenly observing these economic indicators.
