The Reserve Bank of India on Friday said that recently concluded and upcoming trade agreements, including the India–European Union Free Trade Agreement and the India–US trade deal, are expected to support India’s exports over the medium term, even as the global economic environment remains challenging.
Addressing the Monetary Policy Committee meeting and the post-policy press conference, RBI Governor Sanjay Malhotra said services exports are likely to remain resilient, supported by strengthening domestic demand and improving business activity. He cautioned, however, that spillovers from geopolitical tensions, volatility in international financial markets, and shifting global trade patterns continue to pose risks to the outlook.
The Governor said India’s economic activity is expected to hold up well in 2026–27. On the demand side, private consumption momentum is likely to sustain, with rural demand remaining steady due to improving agricultural activity and better rural labour market conditions. Urban consumption is also expected to strengthen further, aided by GST rationalisation and monetary easing.
Investment activity is projected to gain momentum, supported by high capacity utilisation, accelerating bank credit, conducive financial conditions, and the government’s continued emphasis on infrastructure development. Measures announced in the Union Budget are also expected to be supportive of growth.
On the supply side, Malhotra said agricultural activity would benefit from healthy reservoir levels, robust rabi sowing, and improved crop vegetation conditions. Manufacturing activity is expected to receive a boost from improving corporate sector performance and sustained momentum in the informal sector, while construction sector growth is projected to remain firm. The services sector is expected to stay resilient, supported by strengthening domestic demand, with early indicators from IT firms pointing to an improvement in business activity.
The RBI Governor noted that despite global headwinds, India’s economy continues on a steadily improving trajectory, with real GDP growth expected to reach 7.4 per cent in 2025–26, supported by private consumption and fixed investment. However, net external demand remained a drag on growth, as imports continued to outpace exports. Real Gross Value Added (GVA) growth for the year is estimated at 7.3 per cent, driven largely by services and a revival in manufacturing.
Commenting on government finances, Malhotra said the Centre’s borrowing programme is on the lower side, enabling it to raise funds at reasonable prices. He stressed that net borrowing, rather than gross borrowing, should be the focus. Net borrowings for FY27 are estimated at Rs 11.73 lakh crore, only marginally higher than the previous year, despite the larger size of the Budget.
He added that the issuance of Treasury Bills in the coming financial year would help manage the yield curve more effectively and improve the efficiency of the borrowing programme. The RBI, he said, has ensured ample liquidity in the system to support the transmission of earlier repo rate cuts and is not considering changes to its liquidity management framework at present.
On the external sector, the Governor said India’s position remains comfortable, with foreign exchange reserves more than sufficient to meet requirements and over twice the size of short-term external borrowings. He noted that recent trade agreements, opening up of the insurance sector to foreign direct investment, and sustained foreign interest in India’s private banking space reflect confidence in the country’s growth prospects.
Overall, Malhotra said India is currently in a strong macroeconomic position, with inflation better placed and growth outlook stronger than at the previous policy review.
-IANS
