India’s FY26 GDP growth estimate increased to 7.3%, says RBI

The Reserve Bank of India on Friday raised India’s GDP growth projection for 2025-26 to 7.3 percent, up from its earlier estimate of 6.8 percent, after the economy performed better than expected in the July-September quarter. GDP grew 8.2 percent in Q2, the highest in six quarters, exceeding expectations and prompting the RBI to revise the full-year forecast. RBI Governor Sanjay Malhotra said growth in the first half of the year benefited from GST and income tax rationalisation, lower crude oil prices, early government capital expenditure, and stable financial conditions supported by low inflation. On the supply side, real GVA grew 8.1 percent, with both industry and services showing strong momentum. High-frequency indicators suggest that economic activity remains firm in the October-December period, although some leading indicators show early signs of weakness. Rural demand continues to be strong, urban demand is recovering steadily, and private investment is gaining pace with expansion in non-food bank credit and healthy capacity utilisation.

Looking at recent trends, India’s GDP growth was 6.1 percent in 2023-24 and 6.8 percent in 2024-25, showing gradual recovery after the pandemic slowdown. The Q2 growth of 8.2 percent in 2025-26 clearly outpaced both the previous two years and the RBI’s earlier annual forecast of 6.8 percent, reflecting strong domestic demand and investment activity. Despite these positives, merchandise exports fell sharply in October due to subdued global demand, while services exports also softened slightly. Agriculture remains supported by a healthy kharif crop, higher reservoir levels, and improved rabi sowing. The RBI now projects GDP growth at 7 percent in Q3, 6.5 percent in Q4, and 6.7-6.8 percent in the first two quarters of 2026-27, describing risks as “evenly balanced.”

On the external front, India received strong FDI inflows during the first half of the year, with net FDI rising due to lower repatriation, though foreign portfolio investors recorded net outflows of USD 0.7 billion so far, mainly from equities. External commercial borrowings and NRI deposits moderated compared to last year. India’s foreign exchange reserves stood at USD 686.2 billion as of November 28, providing more than 11 months of import cover. The current account deficit moderated from 2.2 percent of GDP in Q2 of 2024-25 to 1.3 percent in Q2 of 2025-26, aided by strong services exports and remittances.

While the domestic economy is stable, prolonged trade uncertainty poses risks. Exports are currently holding but not growing, and any extended delay or uncertainty in a major trade deal could reduce orders further, particularly in textiles, engineering goods, electronics, chemicals, and gems and jewellery. Imports are stable for now due to steady domestic demand and softer crude prices, but disruptions in global trade could raise costs and affect supply chains. Export-dependent industries may also postpone investment and hiring, which could slow growth momentum. Manufacturing growth could weaken if export demand continues to soften, and foreign portfolio outflows or currency volatility could create additional pressures for businesses. Overall, the RBI’s 7.3 percent growth forecast is realistic but optimistic. India’s domestic demand, agriculture, and investment remain strong, yet the external environment will be crucial in determining whether the economy can sustain this pace over the remainder of the year.