India’s GDP Outlook Upgraded
The Reserve Bank of India (RBI) has raised its GDP growth forecast for India to 6.8% for the financial year 2025-26, reflecting growing confidence in the domestic economic recovery. However, the central bank cautioned that the overall outlook remains uncertain amid persistent global headwinds.
Global Risks Continue to Cast a Shadow
While India’s economy shows signs of strengthening, the RBI highlighted elevated global policy uncertainty as a continuing concern. Inflation in several advanced economies remains above central bank targets, complicating efforts to balance growth with price stability.
Financial markets have exhibited volatility in recent months. The US dollar has appreciated, supported by a revised upward GDP estimate for the US in Q2, while treasury yields have hardened in line with shifting interest rate expectations. Meanwhile, equity markets have remained buoyant across both advanced and emerging economies.
Strong Domestic Indicators Fuel Upgraded Outlook
RBI Governor Shaktikanta Das noted several positive domestic indicators that supported the decision to revise the growth forecast upward. Between April and July, the Union and state governments’ revenue expenditure posted strong growth, reflecting improved public sector activity.
Additionally, investment activity remains robust, buoyed by healthy growth in construction inputs like cement production and steel consumption during July and August. Although there has been some moderation in the production and import of capital goods, manufacturing recovery continues, and services sector momentum remains intact.
Looking ahead, the RBI expects further support to growth from favorable monsoon conditions, strong kharif sowing, and adequate reservoir levels, all of which are expected to boost agricultural output and rural demand.
The services sector remains a key pillar of demand, with steady employment trends and rationalisation of GST rates likely to drive consumption in the near term. Meanwhile, rising capacity utilisation, supportive financial conditions, and improving domestic demand are expected to continue facilitating fixed investment.
Downside Risks Remain
Despite the optimistic forecast, the RBI flagged several risks that could dampen growth prospects. These include:
Uncertainty surrounding global tariff and trade policies, which could weigh on external demand.
Geopolitical tensions and volatile financial markets, driven by investor risk aversion.
Ongoing global inflation pressures, which could influence monetary policy in key economies.
Outlook: Cautious Optimism
While India’s domestic fundamentals remain strong, the RBI stressed the importance of vigilance in the face of global uncertainties. The central bank emphasized the need for continued policy support and macroeconomic stability to sustain the growth momentum in the months ahead.
