MUMBAI: Citing high-frequency indicators, Reserve Bank economists have said the economy will sustain the growth momentum going forward as the overall demand conditions remain strong, driven by a revival in rural demand and a gradual recovery in urban demand.
A strong rebound in the manufacturing sector and continued buoyancy in services are expected to boost growth in gross value added, said the Reserve Bank bulletin for January, released Wednesday. The views in the bulletin are not the official views of the RBI but that of the authors.
Automobile retail sales show broad-based growth across categories due to the cuts in GST, further bolstering rural demand, the bulletin said.
"Even amidst these global uncertainties, the current state of the economy provides ground for optimism going forward," the RBI economists said in the state of the economy section of the bulletin, pointing to the high frequency indicators for December which suggest continued buoyancy in growth impulses with demand conditions remaining upbeat.
The article further said the first advance estimates of GDP for FY26 underscored the resilience of the economy, driven by domestic demand amid a challenging external environment. The economy is projected to grow 7.4% in the current financial year, supported by strong manufacturing and services activity, healthy household consumption, and robust fixed-asset investment. This follows a growth of 6.5% in FY25 and 9.2% in FY24.
The GDP growth estimates for FY26 indicate that the country will remain the fastest-growing major economy in the world, it added.
The RBI has projected the GDP to grow at 7.3% in fiscal 2026, while for the next fiscal year, growth is expected at 6.7% and 6.8% for the first and second quarters, respectively.
The article notes that 2026 began with an escalation of geopolitical tensions, including US intervention in Venezuela, the simmering conflict in West Asia, uncertainty around a Russia-Ukraine peace deal, and a renewed row over Greenland. Together, these developments point to elevated geo-economic risks and persistent policy uncertainty.
“The year 2025 also witnessed major economic reforms, including the rationalisation of tax structures, implementation of labour codes for labour market reforms, and financial sector deregulation, all of which are expected to strengthen the growth prospects,” it said.
Indicators of rural demand regained momentum with retail automobile sales recording broad-based growth across categories,” it said. “An increase in automobile sales was driven by enhanced affordability following GST rate cuts, year-end promotional offers, and increased demand ahead of expected price revisions in January. Retail sales of two-wheelers and tractors posted strong growth supported by increase in minimum support prices for rabi crops and GST rationalization.”
Despite these global headwinds, the country is engaged in trade negotiations with 14 countries/blocs, representing nearly 50 nations, including the European Union, Gulf Cooperation Council countries and the US. In December, it concluded trade negotiations with New Zealand and Oman, the article noted.
Economic activity continued to register a strong growth in December, the report said, pointing to the strong E-way bill generation, supported by GST rate cuts, alongside stock clearance and companies’ efforts to meet year-end sales targets. Growth in GST revenue collections was primarily driven by higher import-related GST receipts.
The International Monetary Fund on Monday revised its growth forecast for the country upwards by 0.7 percentage points to 7.3%, citing strong momentum, but said it is likely to slow to 6.4% in the next two fiscal years as cyclical factors fade.
The country has also intensified efforts to diversify and reinforce its exports with the aim of mitigating external sector risks amplified by the threat of further tariffs from the US, said the report.