The Reserve Bank of India (RBI) has projected a real GDP growth of 6.4% for FY25, with expectations of economic activity picking up in the second half of the fiscal year. This growth is anticipated to be driven by improvements in agriculture and manufacturing sectors.
RBI Governor Sanjay Malhotra, while announcing the outcome of the Monetary Policy Committee (MPC) meeting, stated that for FY26, GDP growth is estimated at 6.7%. The quarterly projections for FY26 are as follows: Q1 FY26: 6.7%, Q2 FY26: 7.0%, Q3 FY26: 6.5%, and Q4 FY26: 6.5%.
On the inflation front, the central bank expects Consumer Price Index (CPI) inflation to ease to 4.8% in FY25, with Q4 FY25 inflation projected at 4.4%. For FY26, inflation is forecasted at 4.2%, with quarterly estimates as follows: Q1 FY26: 4.5%, Q2 FY26: 4.0%, Q3 FY26: 3.8%, and Q4 FY26: 4.2%.
Governor Malhotra highlighted that inflation has been declining, supported by a favorable outlook on food prices and the continued transmission of past monetary policy actions. Inflation is expected to further moderate in FY25-26, gradually aligning with the RBI’s target. He further pointed out that food inflation pressures are likely to soften significantly with a favorable rabi crop, contributing to a stable inflation outlook.
Despite global economic uncertainties, India has shown resilience. However, Malhotra acknowledged that the economy could not remain entirely immune to external pressures. The Purchasing Managers’ Index (PMI) for manufacturing indicates continued resilience, while rural demand is on the rise, although urban demand remains subdued.
Key factors supporting growth include tax relief measures in the Union Budget, improved agricultural output, robust business sentiment, and continued policy support from the government. The RBI also plans to strengthen its economic forecasting capabilities using Artificial Intelligence (AI) and will continue its flexible inflation targeting framework to maintain macroeconomic stability.
India’s foreign exchange reserves remain strong, standing at over USD 630 billion as of January 31, 2025, providing an import cover of more than 10 months, which offers solid external stability. The RBI also expects the current account deficit to stay within sustainable levels for the fiscal year, ensuring a stable macroeconomic environment.
The latest rate cut follows a prolonged tightening cycle, during which the RBI raised the repo rate from 4% to 6.5% between May 2022 and May 2023 to combat inflation. This reduction signals a shift towards supporting economic growth while maintaining price stability.
With inflation expected to remain within the RBI’s 4% target range and economic activity set to improve, the central bank’s move is likely to provide relief to borrowers and stimulate consumption and investment in the coming months.
In the most recent policy review, the RBI’s MPC decided to reduce the policy repo rate by 25 basis points (bps), from 6.5% to 6.25%. This marks the first rate cut since May 2020. Despite this reduction, the RBI’s stance remains neutral, with Governor Malhotra emphasizing that inflation has moderated and is expected to align further with the target in FY26.
