NEW DEHLI: Reserve Bank of India Governor Sanjay Malhotra on Wednesday raised the country’s real GDP growth projection for the current financial year 2026-27 by 40 basis points to 7.1 per cent, citing the strength of economic activity despite global headwinds.
Announcing the outcome of the RBI Monetary Policy Committee meeting, Malhotra said geopolitical tensions, elevated international commodity prices, additional frictions in global trade and tightening global financial conditions could weigh on India’s growth outlook. “Taking all these factors into consideration, real GDP growth for this year is projected at 7.1 percent, with Q2 at 7.2 percent, Q3 at 6.9, and Q4 at 6.8 percent,” Malhotra said.
He said the 40 basis points upward revision reflected the strength of economic activity despite the significant global challenges. The RBI Governor said India’s real GDP growth stood at 7.8 per cent in Q1, supported by resilient private consumption and strong investment activity, which recorded almost a 12 per cent increase. The contribution of net exports also remained positive.
#WATCH | Mumbai, Maharashtra: On real GDP growth, RBI Governor Sanjay Malhotra says, “… Headwinds from protracted geopolitical tensions, elevated international commodity prices, additional frictions in global trade, and tightening of global financial conditions may weigh on the growth outlook. Taking all these factors into consideration, real GDP growth for this year is projected at 7.1%, with Q2 at 7.2%, Q3 at 6.9, and Q4 at 6.8%. The upward revision in the growth forecast by 40 basis points further underscores the strength of economic activity. Despite the significant headwinds mentioned earlier, real GDP growth for Q1 next year is projected at 7.1%. The risks are evenly balanced.”
(Source: RBI)
— ANI (@ANI) October 7, 2026
“We exhibited resilience amidst global headwinds, as evident from real GDP growth of 7.8 per cent in Q1,” Malhotra said. He said high-frequency indicators for Q2 suggest that economic activity is maintaining momentum, although with some moderation compared with the previous quarter.
Manufacturing activity has remained steady despite cost pressures, while services sector activity has stayed broad-based, supported by higher domestic and external demand. Both manufacturing PMI and services PMI remained in the expansionary zone in Q2, although the pace of expansion slowed from Q1.
Private consumption remained broadly resilient, supported by discretionary spending, while fixed investment continued to remain strong. However, the RBI Governor said some weakness was visible in non-durable goods and domestic air passenger traffic.
Merchandise exports registered higher double-digit growth during July and August, supported by efforts to expand market access and diversify markets. Services exports also recorded accelerated growth during the two months.
Looking ahead, Malhotra said global economic uncertainty and supply chain disruptions could affect domestic economic activity. He also said a weak southwest monsoon and strong El Niño conditions could affect the upcoming rabi season and rural demand.
He said continued infrastructure spending, a rebound in private capex and strong credit flows are expected to support investment activity. Services exports are expected to remain buoyant, while recently operationalised bilateral trade agreements should support merchandise exports.
The RBI also projected Consumer Price Index (CPI) inflation at 5.2 per cent for FY27, with inflation expected to rise to 6 per cent in the third quarter, mainly due to broadening food and fuel price pressures and elevated supply-side risks.
RBI Governor Sanjay Malhotra said, “Considering all factors, CPI inflation for this year is projected to be 5.2 per cent, with Q2 at 4.9, Q3 at 6 and Q4 at 5.7 per cent, with the risks being evenly balanced. CPI inflation for the first quarter of the next year was projected at 5.6 per cent.”
#WATCH | Delivering Monetary Policy Statement, RBI Governor Sanjay Malhotra says, “The MPC noted that the global context, on account of geopolitical developments, remains challenging. Nonetheless, the Indian economy has been strong and the economic momentum remains broad-based. Moreover, the economy is expected to remain resilient. It is further observed, in light of the available data, that it is clear that inflation and its outlook are not benign as they were last year. With headline CPI inflation expected to average almost 5.8 % in the next three quarters, including this, and core inflation projected at 4.4% for this financial year.”
— ANI (@ANI) October 7, 2026
CPI inflation rose to 4.8 per cent in August from 4.5 per cent in July. “This was largely driven by higher inflation in food and fuel components,” the Governor said. Food price increases have become more broad-based, along with spikes in certain items such as sugar and onion. Fuel inflation also inched up in August, mostly due to “unfavourable base effects”.
Core inflation rose to 4.2 per cent in August after remaining at 3.9 per cent for three consecutive months. Core inflation excluding precious metals stood at 2.9 per cent in August. The broadening of price pressures was also visible in diffusion indices, with the weighted share of items recording inflation over 4 per cent increasing to about 37 per cent in August.
“The near-term outlook on inflation points towards continued pressures from the supply side on account of a variety of reasons,” the Governor said, pointing to the deficient southwest monsoon, El Nino and further citing increased volatility in international oil prices as crude remains above USD 101 per barrel at the time of filing this report.
The RBI said price pressures were increasingly becoming visible in food commodities apart from oil. It also noted early signs of inflation becoming generalised from heightened core inflation and higher inflation across a large segment of the CPI basket. Core inflation for the year was projected at 4.4 per cent, while headline inflation for FY26-27 was projected at 5.8 per cent.
RBI has raised the repo rate by 25 basis points to 5.5 per cent, with the Governor citing rising geopolitical uncertainty, persistent inflation risks, the deficient southwest monsoon and the West Asia conflict among the factors influencing the decision. The central bank has also changed its stance from neutral to ‘calibrated tightening’.
The RBI further took into account rising global bond yields and a more hawkish stance among other central banks, saying the evolution of the inflation outlook will remain a key concern for monetary policy going forward. (ANI)
