The RBI reduces its 2025–2026 GDP growth prediction to 6.5 percent
Due to global trade and policy uncertainty following the US tariff hikes, the RBI’s monetary policy committee has lowered its estimate for India’s GDP growth in 2025–2026 by 20 basis points, from 6.7% to 6.5%, Reserve Bank of India Governor Sanjay Malhotra announced on Wednesday.
The governor of the RBI stated, “First and foremost, uncertainty in and of itself slows growth by influencing corporate and family spending and investment decisions. Second, the slowdown in global economy brought on by trade frictions would hinder growth at home. Third, net exports will suffer from increased tariffs.
The impact of relative tariffs, the elasticities of our import and export demand, and the government’s policy initiatives, such as the proposed Foreign Trade Agreement with the US, are some of the known unknowns, he said.
He noted that this makes it challenging to precisely quantify the negative impact.
The RBI Governor stated that after accounting for all of these variables, the real GDP growth for 2025–2026 is now expected to be 6.5%, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%.
Even while the risks are evenly distributed around these baseline estimates, he noted, there are still a lot of unknowns with the recent surge in global volatility.
India’s real GDP is predicted to increase by 6.5% in 2024–2025, on top of the 9.2% growth rate that was recorded the year before. Malhotra noted that the agriculture sector’s prospects for 2025–2026 are still promising due to stable reservoir levels and strong crop production.
According to him, corporate expectations are still high and manufacturing activity is showing indications of recovery, while the services sector is also doing well.
On the demand side, the agriculture sector’s promising future portends well for rural demand, which is still robust, while urban consumption is progressively increasing due to an increase in discretionary expenditure.
Due to the government’s ongoing emphasis on infrastructure spending, the steady increase in capacity utilization, the sound balance sheets of banks and corporations, and the relaxation of financial conditions, investment activity has accelerated and is predicted to continue improving.
While services exports are predicted to continue to be resilient, merchandise exports will be burdened by global uncertainties. Sanjay Malhotra noted that downside risks are still present due to headwinds from interruptions in global commerce.
