NEW DELHI: India’s economic growth is expected to remain robust in the financial year 2025-26, with real GDP projected to expand by 6.7%, the RBI said in its Monetary Policy statement. For the current financial year (FY25), it has revised its GDP growth projection from 7% earlier to 6.4%.
The RBI says the economy is set to benefit from healthy rabi crop prospects, an industrial recovery, and strong household consumption bolstered by tax relief measures in the Union Budget 2025-26.
Fixed investment is also expected to rebound, driven by higher capacity utilization, strong corporate and financial sector balance sheets, and the government's continued focus on capital expenditure. Business sentiment remains optimistic, as reflected in the Reserve Bank of India (RBI) enterprise surveys and purchasing managers' indices (PMIs). Meanwhile, services exports will continue to provide critical support to economic growth.
However, economic momentum faces challenges from global geopolitical tensions, trade protectionism, volatile international commodity prices, and uncertainties in financial markets. Despite these risks, quarterly growth forecasts remain steady, with Q1 at 6.7%, Q2 at 7.0%, and Q3 and Q4 at 6.5% each.
Inflation Expected to Moderate in FY26
The RBI expects full-year inflation to be 4.8%, with Q4 inflation at 4.4%.
The policy statement says that India’s headline inflation softened in November-December 2024, easing from 6.2% in October. The decline was largely driven by a moderation in food inflation, particularly vegetable prices. Core inflation remained stable across goods and services, while fuel prices continued to deflate.
Going forward, food inflation is expected to further soften due to strong kharif output, cooling vegetable prices, and a promising rabi harvest. However, inflation risks remain from global financial market volatility, energy price fluctuations, and adverse weather events.
Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2%, with quarterly estimates of 4.5% (Q1), 4.0% (Q2), 3.8% (Q3), and 4.2% (Q4).