RBI projects India's FY27 GDP growth at 6.7 per cent, flags inflation and El Niño risks

The Reserve Bank of India RBI on Wednesday projected the Indian economy to grow at 67 per cent in FY202627 The federal institution while cautioning highlighted that inflation is likely to remain elevated in the coming quarters due to food and fuel pricesRBI also flagged El Nintildeoinduced weak monsoon conditions geopolitical tensions in West Asia and global trade uncertainties as key risks that could weigh on both growth and inflationAnnouncing the Monetary Policy Committees decision to keep the repo rate unchanged at 525 per cent RBI Governor Sanjay Malhotra said ldquoIndias economy has remained resilient despite a turbulent global environment marked by the West Asia conflict fresh US tariffs and volatile financial marketsrdquoThe 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 infrastructureAccording 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 Indias external demand to benefit from bilateral trade agreements and continued diversification of export marketsThe RBI has projected real GDP growth at 67 per cent for FY202627 with quarterly growth estimated atQ1 70 per centQ2 64 per centQ3 65 per centQ4 68 per centInflation expected to rise amid rising fuel pricesWhile 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 broadbased demand pressuresGovernor 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 moderatingWhile CPI inflation increased to 44 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 Q1202627 The increase in June was primarily due to higher food fuel and fuelinduced inflation in select categories such as restaurant servicesThe RBI said core inflation remained stable at 39 per cent during May and June Excluding precious metals core inflation was estimated at 2325 per cent indicating that underlying price pressures remain containedGoing forward El Nintildeorsquos 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 twoway movements triggered by geopolitical developments blurring the nearterm outlook Although generalised inflation pressures continue to remain modest so far the risks of secondround impact of higher food fuel and other input prices translating to broadbased inflation persistAfter considering all the factors the CPI inflation for 202627 is projected to be 50 per cent with Q2 at 47 per cent Q3 at 59 per cent and Q4 at 55 per cent Inflation for Q1 202728 is projected at 53 per cent with risks being evenly balanced Core inflation is projected at 43 per cent for 202627 Core inflation excluding precious metals is projected to be lower though it is likely to align with core inflation from Q4Impact of El NintildeoWhile the overall economic outlook looked positive the RBI had further cautioned that El Nintildeo continues to be one of the biggest weatherrelated risks for the Indian economyThe central bank while highlighting that the impact could be partially mitigated by comfortable reservoir levels noted ldquoLooking ahead the prospects for agriculture are clouded by deficient and uneven southwest monsoon amidst El Nintildeo conditions The reservoir levels which remain close to normal bode well The governmentrsquos initiatives for crop diversification including short duration as well as climateresilient crops and water harvesting and conservation inter alia are expected to mitigate the impact of deficient rainfallrdquo