NEW DELHI: The Reserve Bank of India on Wednesday raised its projection for India’s real GDP growth in FY27 to 7.1% from its earlier estimate, citing resilient domestic economic activity, buoyant services exports and support from recently operationalised bilateral trade agreements.
The RBI projected growth at 7.2% in the second quarter, 6.9% in Q3 and 6.8% in Q4. Growth for Q1 FY28 is projected at 7.1%. The central bank said risks to the growth outlook were evenly balanced.
“The upward revision in growth forecasts by 40 basis points further underscores the strength of economic activity, despite the significant headwinds,” RBI governor Sanjay Malhotra said.
The growth outlook, however, faces risks from prolonged geopolitical tensions, elevated international commodity prices, greater friction in global trade and tightening global financial conditions.
The RBI projected CPI inflation at 5.2% for FY27, with inflation expected to rise from 4.9% in Q2 to 6% in Q3 before moderating to 5.7% in Q4. Inflation for Q1 FY28 is projected at 5.6%. The risks to the inflation outlook were also assessed as evenly balanced.
CPI inflation rose to 4.8% in August from 4.5% in July, driven largely by higher food and fuel inflation. The RBI said food price pressures had become more broad-based, with notable increases in items such as sugar and onion.
The central bank flagged supply-side risks arising from a deficient southwest monsoon, El Niño conditions and volatility in international oil prices.
“Price pressures are increasingly becoming visible across a range of commodities within the food component, apart from oil,” the governor said.
The RBI also pointed to early signs of inflation becoming more generalised, with core inflation rising and price pressures spreading across a larger share of the CPI basket. The weighted share of items recording inflation above 4% rose to about 37% in August.
Core inflation, excluding precious metals, increased to 2.9% in August, while core inflation for the year is projected at 4.4%.
The RBI said the domestic economy continued to show resilience despite the challenging global environment. Services exports are expected to remain buoyant, while recently operationalised bilateral trade agreements are expected to support merchandise exports.
The central bank also highlighted the resilience of the external sector, with net FDI inflows rising to $13.8 billion in the first four months of FY27 from $9.6 billion in the year-ago period.
However, India's merchandise trade deficit widened to $58.7 billion in July-August from $55.1 billion in the corresponding period last year, mainly due to higher imports of electronic goods and crude oil. Moderation in global trade growth, elevated energy prices and persistent trade-policy uncertainties pose risks to the current account deficit.
The RBI said robust services exports, inward remittances and implementation of the India-UK trade deal and other bilateral agreements could provide resilience to the external sector.
The central bank also said India's foreign exchange reserves remained adequate, with import cover of around 11 months and external debt cover of 94.4%.