Economic outlook positive despite headwinds: RBI

The Reserve Bank of India (RBI) on Friday said the outlook for the Indian economy remains positive, even as it cautioned that global uncertainties, particularly geopolitical tensions, could pose downside risks, according to its Annual Report for 2025-26.

“Going forward, India’s growth outlook remains positive, though the West Asia conflict and the attendant risks of elevated energy prices, supply chain disruptions, financial market volatility, uncertainty surrounding global trade policies and weather-related disruptions could pose headwinds to growth and inflation in the short run,” the RBI said in its assessment and prospects chapter.

The central bank projected real GDP growth for 2026-27 at 6.9 %, while flagging risks to the downside. “On the assumption that the adverse impact of the West Asia conflict would remain contained in the near-term, real GDP growth for 2026-27 is projected at 6.9 % with risks tilted to the downside,” it said, adding that “the healthy balance sheets of the corporate and banking sectors along with the government’s continued thrust on capital expenditure bode well for India’s strong growth trajectory.”

On inflation, the RBI said price pressures could inch up, with risks tilted to the upside. “Considering all these factors, CPI inflation for 2026-27 is projected at 4.6 % with risks tilted to the upside,” it said. It also noted that “in its second review, the central government in consultation with the Reserve Bank retained the inflation target of 4 % with a tolerance band of +/- 2 % for the period beginning April 1, 2026, and ending on March 31, 2031.”

The report highlighted that agricultural prospects will hinge on monsoon performance. On fiscal consolidation, the RBI said the Centre remains on track. “GFD is projected at 4.3 % of GDP in 2026-27, reflecting the Centre’s continued fiscal consolidation efforts in recent years,” it said, adding that “the Union Government has set up an Economic Stabilisation Fund (ESF) to provide fiscal space against global headwinds.”

The central bank also outlined its financial and technological roadmap, including expansion of digital initiatives such as CBDC, pilots on tokenisation of financial assets and scaling up Unified Lending Interface (ULI).

The RBI flagged external sector risks while indicating that buffers remain adequate to manage volatility. “India’s foreign exchange reserves (US$ 691.1 billion as at end-March 2026) remained adequate in terms of the standard metrics of reserve adequacy, including import cover of about 11 months and external debt cover of 90.3 per cent, thereby providing buffer against adverse global spillovers,” it said, signalling the capacity to manage pressure on the rupee.

The report linked risks to global geopolitics, particularly through energy prices. “The West Asia conflict and the attendant risks of elevated energy prices, supply chain disruptions, financial market volatility, uncertainty surrounding global trade policies and weather-related disruptions could pose headwinds to growth and inflation in the short run,” it said, underscoring the potential impact of oil prices on inflation and the external balance.

While the report did not provide a specific current account deficit projection, it indicated that external pressures remain contained. “The adverse spillovers remained contained, with net exports exerting only a marginal drag of 0.1 percentage points in 2025-26,” it said, suggesting that the current account position remains manageable even as risks from global trade and energy markets persist.
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