Understanding RBI's Revised GDP Growth Forecast for FY2025-26

RBI Revises India's GDP Growth Forecast

The Reserve Bank of India (RBI) has updated its GDP growth forecast for FY2025–26 to 7.3%, an increase from the previous estimate of 6.8%. This adjustment reflects a robust performance in the second quarter and is driven by sustained domestic demand, effective policy reforms, and favorable macroeconomic conditions. The announcement followed the recent meeting of the Monetary Policy Committee (MPC), which also decided on a 25 basis point repo rate cut, reducing the policy rate to 5.25% to bolster economic activity.

Key Growth Drivers Behind the Revision

• Strong Q2 GDP Performance: India's GDP surged by 8.2% in Q2 of FY25, marking the highest growth in six quarters. This growth was attributed to:
  • Increased consumer demand during the festive season.
  • GST rate rationalization, enhancing consumption.
  • Front-loaded capital expenditure by the government.
  • Decreasing crude oil prices, which improved trade and cost structures.
• Policy Support and Reforms: Recent fiscal and monetary measures have included:
  • Simplification of GST structure, now featuring 5% and 18% slabs.
  • Tax reductions on essential consumer goods.
  • Improved rural consumption due to favorable agricultural output.

Updated GDP Forecasts

The RBI's latest projections for upcoming quarters and financial years include:

• FY26 GDP Growth: Revised to 7.3% (from 6.8%)
• Q3 FY26: Revised to 7.0% (from 6.4%)
• Q4 FY26: Revised to 6.5% (from 6.2%)
• Q1 FY27: Revised to 6.7% (from 6.4%)
• Q2 FY27: Projected at 6.8%

This trend indicates a steady path of economic expansion, fueled by strong fundamentals and rising domestic demand.

Repo Rate Cut and Monetary Support

The MPC's decision to lower the policy repo rate by 25 bps aims to:

• Support credit flow to productive sectors.
• Encourage private investment and consumer spending.
• Mitigate the impact of emerging global economic uncertainties.

This balanced approach showcases the RBI's commitment to supporting growth while managing inflation.

Domestic and Global Factors

India's Chief Economic Advisor and the RBI Governor emphasized the nation's resilience amid global economic uncertainties, asserting that India remains a “relative oasis of stability and growth.” Anticipated developments, such as a potential India–US trade deal and sustained global interest in the Indian market, are expected to further enhance economic momentum.

India's Global Economic Ranking

According to the International Monetary Fund (IMF), India is projected to become the world's 4th largest economy by the end of FY26, surpassing Japan. Over the past decade, India has advanced from 10th to 4th place, propelled by strategic policy reforms, digital transformation, and a vibrant services sector.

Frequently Asked Questions (FAQs)

Q1. What are the key factors driving India's GDP growth forecast?
Answer: India's GDP growth forecast is driven by strong consumer demand, government capital expenditure, and effective fiscal measures aimed at boosting economic activity.

Q2. How has the RBI's repo rate change impacted the economy?
Answer: The RBI's repo rate cut to 5.25% is intended to support credit flow, encourage investment, and mitigate global economic uncertainties.

Q3. What is the projected GDP growth for FY26?
Answer: The RBI has revised India's GDP growth forecast for FY26 to 7.3%, indicating a positive economic outlook.

Q4. How does India rank globally in terms of economy?
Answer: India is expected to become the world's 4th largest economy by FY26, overtaking Japan due to significant reforms and growth in the services sector.

Q5. What impact do global economic factors have on India's growth?
Answer: Global economic factors, including trade deals and overall market interest, significantly influence India's economic stability and growth trajectory.