Despite growing global uncertainties, including escalating trade tensions with the United States and strained relations with Pakistan, India’s economic growth remains resilient. The Reserve Bank of India (RBI) has expressed confidence in the country’s trajectory, forecasting India to remain the fastest-growing major economy through fiscal year 2025-26.
In its latest annual report, the RBI emphasized that India’s economy is well-positioned to maintain its growth momentum. This outlook comes even as the GDP growth rate for 2024-25 is projected to moderate to 6.5%. Comparatively, global economic growth is expected to hover around 2.8% in 2025 and rise modestly to 3.0% in 2026.
Inflation Expected to Stay Around 4%
The RBI also addressed inflationary concerns, stating that consumer price inflation is projected to stabilize close to the 4% target over the next 12 months. The central bank noted that a low-inflation environment combined with moderate economic growth creates the space for a supportive monetary policy that promotes expansion.
According to the RBI, the current macroeconomic environment allows for a growth-friendly approach to interest rates. However, it stressed the need for vigilance amid rapidly evolving global financial and geopolitical dynamics.
GDP Growth and Policy Adjustments
For fiscal year 2025-26, both headline inflation and GDP growth are projected at 4% and 6.5% respectively. The RBI’s Monetary Policy Committee (MPC), consisting of six members, has reduced the benchmark repo rate by 50 basis points since February. The April policy review further signaled a dovish stance, underscoring the central bank’s focus on supporting economic expansion.
Growth Drivers Remain Intact
The RBI report highlights several positive indicators supporting India’s economic outlook, including improving consumer demand, continued government focus on capital expenditure, stronger bank and corporate balance sheets, and resilient services sector performance. Additionally, growing consumer and business optimism, along with robust economic fundamentals, are expected to bolster growth.
Caution Over Global Risks
While optimistic, the RBI also flagged key risks that could impact long-term growth. These include potential geopolitical tensions and instability in global financial markets. Such factors could introduce uncertainty into India’s economic landscape and potentially spur inflationary pressures.
On a positive note, the RBI cited easing global commodity prices, the prospect of a strong southwest monsoon, and expectations of higher agricultural output as favorable signs for controlling inflation.
The central bank also highlighted a structural concern: the continued reliance of non-banking financial companies (NBFCs) on banks for funding. It stressed the need for diversification in their funding sources, adding that infrastructure improvements in this space are anticipated.
In summary, the RBI’s annual report paints a largely optimistic picture of India’s economic prospects, backed by stable inflation, policy support, and structural strength — even as it keeps a watchful eye on external risks.
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