RBI Upgrades India's GDP Growth Forecast to 6.8% for 2025-26 Amid Structural Reforms

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The Reserve Bank of India has upgraded its forecast for India's GDP growth rate to 6.8 percent for 2025-26, revised from the previous estimate of 6.5 percent, Governor Sanjay Malhotra announced on Wednesday. This upward revision reflects expectations that various growth-enhancing structural reforms, including GST streamlining, will counterbalance negative effects from external economic challenges.

Governor Malhotra highlighted that India achieved a robust GDP growth of 7.8 percent in the first quarter of 2025-26, propelled by strong private consumption and fixed investment performance.

From a supply perspective, the gross value added (GVA) grew at 7.6 percent, with manufacturing revival and consistent services expansion driving this growth. Current high-frequency indicators suggest continued economic resilience. Rural demand remains strong, supported by favorable monsoon conditions and robust agricultural activity, while urban demand shows gradual improvement, according to the RBI Governor.

"After considering all these factors, real GDP growth for 2025-26 is now projected at 6.8 percent, with quarterly forecasts of 7.0 percent for Q2, 6.4 percent for Q3, and 6.2 percent for Q4," Malhotra elaborated.

He noted that the global economy has demonstrated greater resilience than expected in 2025, with strong growth in the United States and China. However, the outlook remains uncertain amid elevated policy concerns. Inflation exceeding targets in several advanced economies creates new challenges for central banks navigating shifting growth-inflation dynamics. Financial markets have experienced volatility, with the US dollar strengthening following upward revisions to second-quarter US growth figures, and treasury yields hardening recently in response to changing policy rate expectations. Equity markets have remained buoyant across numerous advanced and emerging economies.

The RBI Governor further reported that Union and state governments' revenue expenditure showed robust growth during the current fiscal year (April-July). Investment activity remains strong, as evidenced by healthy growth in construction indicators such as cement production and steel consumption in July-August, despite some moderation in capital goods production and imports. The manufacturing sector continues to recover while services activity maintains its momentum.

Looking forward, Malhotra noted that above-normal monsoon conditions, favorable kharif sowing progress, and adequate reservoir levels have brightened prospects for agriculture and rural demand. The services sector's buoyancy, along with stable employment conditions, supports overall demand, which is expected to receive additional stimulus from GST rate rationalization. Rising capacity utilization, favorable financial conditions, and improving domestic demand should continue to facilitate fixed investment.

However, he cautioned that ongoing uncertainties in tariff and trade policies will impact external demand for goods and services. Prolonged geopolitical tensions and volatility in international financial markets due to investors' risk-off sentiments also present downside risks to the growth outlook.