RBI Monetary Policy: GDP growth forecast at 6.7% for FY26

The Reserve Bank of India (RBI) has estimated GDP growth for the fiscal year 2025-26 (FY26) at 6.7 per cent, on the back of healthy prospects for the rabi crop and an expected recovery in industrial activity which should support economic growth in 2025-26. This is a slight improvement from the RBI's growth estimates of 6.4 per cent for FY25.

On the supply side, growth is supported by the services sector and a recovery in agriculture sector, while tepid industrial growth is a drag.

Quarter-wise, GDP for Q1FY26 is pegged at 6.7 per cent, while for Q2 it is projected at 7 per cent and for Q3 and Q4 of FY26 it is forecasted at 6.5 per cent each.

Assessing the current growth trend, the Governor's statement said,  "As per the first advance estimates, real GDP growth for the current year (FY25) is estimated at 6.4 per cent, a softer expansion after a robust 8.2 per cent growth last year." Nevertheless, going forward, economic activity is expected to improve in the coming year. 

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, noted the monetary policy statement.

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, it added.

Nonetheless, the RBI noted thatthe challenges stemming from geopolitical tensions, protectionist trade policies, fluctuations in international commodity prices, and uncertainties in financial markets persist as potential threats to the outlook.

The Monetary Policy Committee (MPC) on the sidelines, unanimously cut the repo rate--the rate at which RBI lends money to commercial banks--by 25 basis points to 6.25 per cent.