RBI Governor Projects Strong Economic Outlook Amid Global Uncertainty

 Growth forecast for FY 2025–26 retained at 6.5% despite trade headwinds

India’s economy continues to show resilience and promise amid a shifting global order, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday, while unveiling the third bi-monthly monetary policy of the current financial year.

"The Indian economy holds bright prospects in the changing world order, drawing on its inherent strengths," Malhotra stated, affirming the central bank’s GDP growth projection of 6.5% for FY 2025–26, unchanged from its previous estimate.

While global trade conditions remain volatile—particularly in light of recent tariff announcements and ongoing trade negotiations—the RBI noted that India’s domestic fundamentals remain robust. “Prospects for external demand remain uncertain. However, taking all factors into account, real GDP growth for 2025–26 is projected at 6.5%,” the Governor said.

Quarterly Breakdown

According to the RBI, real GDP growth is expected to proceed as follows:

• Q1 FY26: 6.5%

• Q2 FY26 : 6.7%

• Q3 FY26 : 6.6%

• Q4 FY26 : 6.3%

• Q1 FY27 : 6.6%

The central bank noted that risks to the growth outlook are evenly balanced, with multiple domestic factors providing support for sustained expansion.

Macroeconomic Drivers

The RBI highlighted several factors contributing to the positive outlook, including:

• An above-normal southwest monsoon, expected to boost agricultural output

• Easing inflationary pressures

• Rising capacity utilisation in manufacturing

• Congenial financial conditions backed by accommodative policy

Additionally, supportive monetary, fiscal, and regulatory frameworks, along with robust public capital expenditure, are expected to further stimulate demand across sectors.

The central bank also emphasized the strength of India’s services sector, noting that "with sustained growth in construction and trade segments, the services sector is expected to remain buoyant in the coming months."

External Pressures and Political Context

Governor Malhotra’s comments come shortly after U.S. President Donald Trump referred to India as a “dead economy,” while announcing a 25% tariff on Indian imports and threatening additional penalties in response to New Delhi’s continued defense and energy engagements with Russia.

In this context, the RBI’s steady growth forecast signals a measured confidence in India’s internal economic momentum, even as geopolitical tensions weigh on global trade flows.

Global Reactions and Revised Forecasts

A recent S&P Global Market Intelligence report cautioned that if the U.S. tariffs remain in effect beyond September 2025, India's growth outlook could face downward revision. S&P adjusted India’s FY 2025–26 GDP forecast to 6.2%, down from 6.5% the previous year.

The report also noted persistent barriers in Indo-U.S. trade relations, particularly India’s firm stance on market access in agriculture and dairy, areas deemed politically sensitive due to their direct impact on the country’s vast farming population.

Despite growing external uncertainties and geopolitical pressures, the RBI’s latest outlook underscores confidence in India’s domestic economic drivers. With a stable policy environment and continued government investment, the central bank appears optimistic about India's trajectory in an increasingly fragmented global economy.