Economic activity has remained resilient with growth of real GDP surprising on the upside at 7.8%

The Reserve Bank of India (RBI) on Wednesday raised India’s GDP growth forecast for the current year to 6.8% compared with its previous estimate of 6.5%.

Economic activity has remained resilient with growth of real gross domestic product surprising on the upside at 7.8% and gross value added at 7.6% for Q1: 2025-26. As suggested by high frequency indicators available so far, domestic economic activity continues to sustain momentum in Q2:2025-26.

“The progress of the southwest monsoon has been satisfactory. Healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of food-grains should keep food prices benign. The recently implemented GST rate rationalisation would lead to a reduction in prices of several items in the CPI basket,” the RBI said.

“The implementation of several growth-inducing structural reforms, including streamlining of GST are expected to offset some of the adverse effects of the external headwinds. Taking all these factors into account, real GDP growth for 2025-26 is now projected at 6.8%, with Q2 at 7%, Q3 at 6.4%, and Q4 at 6.2%. Real GDP growth for Q1:2026-27 is projected at 6.4%,” the RBI said.

Inflation conditions remained benign during 2025-26 so far with actual outcomes turning out to be significantly lower than projections. Core inflation remained largely contained with the August reading at 4.2%, despite continued price pressures on precious metals.

Overall, the inflation outcome is likely to be softer than what was projected in August, primarily on account of the GST rate cuts and benign food prices. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.6% with Q2 at 1.8%; Q3 at 1.8%; and Q4 at 4%. CPI inflation for Q1:2026-27 is projected at 4.5%.