05 August,2026 08:40 PM IST | Mumbai | mid-day online correspondent
RBI said the economy continues to be supported by a resilient services sector, steady employment conditions, robust credit growth, and sustained government spending on infrastructure. Representational pic
The Reserve Bank of India (RBI) on Wednesday projected the Indian economy to grow at 6.7 per cent in FY2026-27. The federal institution, while cautioning, highlighted that inflation is likely to remain elevated in the coming quarters due to food and fuel prices.
RBI also flagged El Niño-induced weak monsoon conditions, geopolitical tensions in West Asia, and global trade uncertainties as key risks that could weigh on both growth and inflation.
Announcing the Monetary Policy Committee's decision to keep the repo rate unchanged at 5.25 per cent, RBI Governor Sanjay Malhotra said, "India's economy has remained resilient despite a turbulent global environment marked by the West Asia conflict, fresh US tariffs and volatile financial markets."
The central bank said the economy continues to be supported by a resilient services sector, steady employment conditions, robust credit growth, and sustained government spending on infrastructure.
According to the RBI, strong momentum in the services sector and stable employment are expected to boost urban consumption, while high capacity utilisation in industries and healthy credit flow will support private investment. The central bank also expects India's external demand to benefit from bilateral trade agreements and continued diversification of export markets.
The RBI has projected real GDP growth at 6.7 per cent for FY2026-27, with quarterly growth estimated at:
While highlighting rising inflation, RBI observed that headline retail inflation has moved above its 4 per cent target after remaining below it for 16 consecutive months. However, it emphasised that the rise has largely been driven by food and fuel prices, rather than broad-based demand pressures.
Governor Malhotra said underlying inflation remains benign, with core inflation excluding precious metals staying moderate. The central bank expects headline inflation to rise further and peak during the third quarter of FY27 before moderating.
While CPI inflation increased to 4.4 per cent in June 2026 after remaining below the target for 16 consecutive months, it turned out to be lower by 30 basis points (bps) than what was earlier projected12 for Q1:2026-27. The increase in June was primarily due to higher food, fuel and fuel-induced inflation in select categories such as restaurant services.
The RBI said core inflation remained stable at 3.9 per cent during May and June. Excluding precious metals, core inflation was estimated at 2.3-2.5 per cent, indicating that underlying price pressures remain contained.
Going forward, El Niño's impact on temporal and spatial rainfall distribution continues to remain a major risk, although proactive supply management and adequate stock of foodgrains should provide comfort. Global oil prices have remained highly volatile with sharp two-way movements triggered by geopolitical developments, blurring the near-term outlook. Although generalised inflation pressures continue to remain modest so far, the risks of second-round impact of higher food, fuel and other input prices translating to broad-based inflation persist.
After considering all the factors, the CPI inflation for 2026-27 is projected to be 5.0 per cent with Q2 at 4.7 per cent; Q3 at 5.9 per cent; and Q4 at 5.5 per cent. Inflation for Q1 2027-28 is projected at 5.3 per cent with risks being evenly balanced. Core inflation is projected at 4.3 per cent for 2026-27. Core inflation excluding precious metals is projected to be lower, though it is likely to align with core inflation from Q4.
While the overall economic outlook looked positive, the RBI had further cautioned that El Niño continues to be one of the biggest weather-related risks for the Indian economy.
The central bank, while highlighting that the impact could be partially mitigated by comfortable reservoir levels, noted, "Looking ahead, the prospects for agriculture are clouded by deficient and uneven southwest monsoon amidst El Niño conditions. The reservoir levels, which remain close to normal, bode well. The government's initiatives for crop diversification including short duration as well as climate-resilient crops, and water harvesting and conservation, inter alia are expected to mitigate the impact of deficient rainfall."
