On 5 December 2025, the RBI’s Monetary Policy Committee (MPC) revised the real GDP growth estimate for fiscal year (FY) 2025-26 to 7.3%, up from the previous projection of 6.8%. mint
Alongside the upgrade in growth, the RBI also lowered the CPI-based inflation forecast for FY26 to 2.0%, down from its earlier projection of 2.6%.
Quarterly estimates also changed: the MPC now projects Q3 FY26 growth at ~ 7.0% (up from 6.4%), and Q4 at ~ 6.5% (up from 6.2%).
Why RBI Upgraded Its Forecast — What’s Driving the Optimism
According to the RBI, several factors support stronger-than-expected growth:
- Resilient domestic demand: Both rural demand and urban consumption remained robust, helped by recent festival-season spending and rationalisation in goods & services tax (GST) rates.
- Healthy investment activity: Private investment has picked up sharply, buoyed by improved non-food bank credit flow, high capacity utilisation in industry and supportive credit conditions.
- Strong performance in first half: Real GDP grew at a strong pace in H1 FY26 — Q1 recorded 7.8%, while Q2 saw 8.2% — providing a solid base for the rest of the year.
- Favourable macro environment: Lower food-price pressures, benign inflation, a stable monetary policy stance, and improved liquidity have bolstered consumption and investment sentiment.
What It Means: Implications for Economy, Policy & Markets
📈 For India’s Economy
- A 7.3% growth rate would cement India’s position as one of the fastest-growing major economies globally in FY26, sustaining momentum from last year.
- Strong growth, paired with low inflation, improves household incomes, consumption demand and boosts business confidence — potentially leading to further job creation and investment expansion.
🔧 For Policy & Monetary Stance
- With inflation projected at 2.0%, well below RBI’s 4% target midpoint, the central bank now enjoys room for a more accommodative monetary policy. This supports potential further rate cuts or liquidity injections—beneficial for borrowers, businesses, and markets. Business Standard
- Lower inflation together with growth allows RBI to maintain a “neutral” policy stance while keeping a careful eye on global uncertainties.
💹 For Financial Markets & Investment Sentiment
- Strong GDP outlook and stable macro conditions may drive domestic investment — equity markets may benefit, and investor confidence could increase.
- Businesses may accelerate expansion or capital expenditure given improving demand, credit conditions and stable inflation — likely boosting sectors like consumer goods, infrastructure, manufacturing.
What Could Still Pose Risks — The Cautions Ahead
While the outlook is upbeat, certain risks remain:
- Global headwinds — weak external demand, geopolitical uncertainties, or trade disruptions — could dampen export growth, which has already seen some softness recently.
- Commodity-price volatility, especially food and fuel, could challenge the low-inflation forecast and squeeze real incomes or consumption.
- Investment momentum needs to be sustained — a slowdown in credit growth, capacity constraints, or regulatory bottlenecks could derail the growth trajectory.
Conclusion
The RBI’s decision to raise its FY26 GDP growth forecast to 7.3% — combined with a lower inflation target — reflects renewed confidence in India’s economic trajectory. Driven by strong consumption, healthy investment and an improved macro environment, the outlook suggests a “sweet-spot” phase for the economy. However, global uncertainties and domestic structural challenges remain, making it crucial for policymakers and businesses to stay vigilant while riding this optimistic wave.
