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3D rendered concept of the state of the economic and finance markets in India. | Photo Credit: Kagenmi
The Reserve Bank of India expects FY26 GDP to be a tad higher at 6.7 per cent vs 6.6 per cent estimated for FY25 even as it sees retail inflation lower at 4.2 per cent in FY26 against projected 4.8 per cent for FY25.
Looking ahead, healthy rabi prospects and an expected recovery in industrial activity should support economic growth in 2025-26, Governor Sanjay Malhotra said.
Among the key drivers on the demand side, household consumption is expected to remain robust aided by the tax relief in the Union Budget 2025-26.
“Fixed investment is expected to recover, supported by higher capacity utilisation levels, healthy balance sheets of financial institutions and corporates, and Government’s continued emphasis on capital expenditure.
“This is corroborated by positive business sentiments highlighted in the Reserve Bank’s enterprise surveys and PMIs. Resilient services exports will continue to support growth,” the Governor said.
However, headwinds from geopolitical tensions, protectionist trade policies, volatility in international commodity prices and financial market uncertainties, continue to pose downside risks to the outlook.
Taking all these factors into consideration, real GDP growth for 2025-26 is projected at 6.7 per cent with Q1 at 6.7 per cent; Q2 at 7.0 per cent; and Q3 and Q4 at 6.5 per cent each. The risks are evenly balanced.
Malhotra noted that going ahead, food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects. Core inflation is expected to rise but remain moderate.
Continued uncertainty in global financial markets coupled with volatility in energy prices and adverse weather events presents upside risks to the inflation trajectory, he said.
Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent with Q4 at 4.4 per cent (4.5 per cent).
Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2 per cent with Q1 at 4.5 per cent; Q2 at 4.0 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent. The risks are evenly balanced.
Published on February 7, 2025
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