The RBI revised India’s GDP growth forecast for FY 2025-26 upwards to 6.8% from earlier estimate of 6.5%.
NEW DELHI (India CSR)— The Reserve Bank of India (RBI) has unveiled its latest Monetary Policy Report (October 2025), confirming a commitment to stability by holding key interest rates steady while significantly boosting its growth projections for the Indian economy. Following the 57th meeting of the Monetary Policy Committee (MPC), which convened from September 29 to October 1, 2025, the RBI maintained a cautiously optimistic view, underscoring the nation’s economic resilience.
Stability First: The Rate Decision
The RBI has chosen to keep the repo rate unchanged at 5.50 per cent. This decision was accompanied by the continuation of a neutral monetary stance. This neutral stance is interpreted as a balanced approach, designed to support the prevailing economic momentum while simultaneously ensuring that financial stability across the system is maintained.
The Monetary Policy Report highlights several encouraging economic factors supporting this balanced approach, including resilient domestic demand, favorable financial conditions, and a stable external sector.
Stronger Growth Trajectory Ahead
Perhaps the most impactful announcement from the policy report was the significant upward revision of India’s projected GDP growth. The RBI has revised India’s GDP growth forecast for the full Fiscal Year (FY) 2025-26 upwards to 6.8%, a considerable increase from its earlier estimate of 6.5%.
This stronger growth outlook is firmly rooted in excellent domestic performance, driven by a powerful mix of factors. The economy is being propelled by strong consumption, rising investments, and strategic government spending. Supportive elements further sustaining this positive outlook include better credit flow, rising capacity utilisation, the continued benefits of GST 2.0 reforms, and a good monsoon.
The recent economic history reinforces this optimism. India’s real Gross Domestic Product (GDP) grew robustly at 7.8% in Q1 of FY 2025-26, which was an acceleration from the 7.4% recorded in the preceding quarter. This Q1 performance marked the fastest pace of growth seen in seven quarters, largely led by strong investment and consumption activity.
The overall growth projection for FY 2025-26 is detailed quarterly: Q1 is placed at 7.8%, Q2 at 7.0%, Q3 is forecast at 6.4%, and Q4 at 6.2%. Looking ahead, the projection for FY 2026-27 is estimated to be 6.6%, a forecast based on the assumption of stable conditions and a normal monsoon.
Adding to this positive momentum is the strengthening of consumer sentiment. The future expectations index, a measure of consumer optimism for the upcoming year, has strengthened further for both urban and rural households, indicating that optimism remains firmly entrenched in the Indian consumer base.
Global Confidence in India’s Resilience
India’s robust economic trajectory has been widely recognized internationally. Several global agencies have reaffirmed the country’s strong growth prospects, underscoring its resilience despite prevailing global uncertainties. These projections reflect a broad consensus and confidence in India’s ability to sustain high growth even amidst global challenges.
Key economic drivers noted by these international bodies include robust domestic demand, expanding investments, and a stable external sector. Furthermore, a vibrant services sector, structural reforms, and strong policy support are reinforcing the overall positive growth outlook.
Notable forecasts for FY 2025-26 from these agencies include:
• Fitch: 6.9%
• OECD: 6.7%
• S&P Global: 6.5%
• IMF: 6.4%
• United Nations: 6.3%
• CII: 6.4-6.7%
For the subsequent fiscal year, FY 2026-27, the United Nations estimates growth at 6.4%, and Fitch projects 6.3%.
Inflation Under Control: Prices Stay Stable
The RBI delivered positive news on the inflation front, highlighting effective price management and favourable underlying conditions. The central bank has lowered its CPI inflation forecast for FY 2025–26 significantly, dropping it to 2.6% from the previously anticipated 3.1%.
Actual inflation figures have consistently surprised on the downside. For instance, earlier projections for inflation were 3.8% for Q4 FY 2024-25 and 3.6% for Q1 FY 2025-26; however, actual outcomes were lower by a substantial 90 basis points.
Headline consumer price index (CPI) inflation demonstrated a sustained decline, reaching an 8-year low of 1.6 per cent in July 2025, after falling for nine consecutive months. While inflation slightly increased to 2.1 per cent in August, it continues to remain comfortably within the RBI’s target range.
The primary catalyst for this drop was a prolonged and steep decline in food prices, which fell by 10.5% over nine months, representing the longest recorded food price decline in the CPI series. Additionally, milder summer temperatures contributed to an easing of seasonal price pressures, thereby helping realized inflation stay below expectations during Q1 and Q2 FY 2025-26.
Policy interventions also played a crucial role. The GST rate rationalisation, implemented from September 22, 2025, simplified taxes and successfully lowered consumer prices, directly impacting around 11.4% of the CPI basket across various product groups.
External Sector Resilience: Trade and Investment
Amid global trade uncertainties, India’s external sector has remained stable and well-balanced. The country witnessed a substantial narrowing of its current account deficit (CAD) to just 0.2% of GDP in Q1 FY 2025-26. This represents a significant improvement compared to the 0.9% of GDP recorded a year ago.
This stronger external position was supported by robust remittances, totalling US$35.3 billion, securing India’s position as the world’s largest recipient of private remittances. Strong services exports were also instrumental in narrowing the CAD.
In terms of trade performance, India’s merchandise exports increased by 2.5% during April–August 2025, while imports grew by 2.1%. Services exports maintained double-digit growth. During Q1 FY 2025-26, the real exports of goods and services grew by 6.3%, with real imports showing a growth of 10.9%.
India continues to be a highly attractive global investment destination. Gross Foreign Direct Investment (FDI) inflows remained strong, reaching US$ 37.7 billion during April-July 2025. Net inflows rose to US$10.8 billion. The majority of this FDI, 76% of the total, originated from key partners: Singapore, the US, Mauritius, UAE, and the Netherlands.
Liquidity and Stable Financial Markets
During the first half of the fiscal year (April-September of FY 2025-26, up to September 26), Indian equity markets maintained a clear upward trajectory. This growth was sustained despite encountering a brief period of volatility linked to geopolitical tensions and uncertainty in trade policy.
The BSE Sensex, the benchmark index, saw an increase of 3.9 per cent during this period. Crucially, the broader market indices outperformed the benchmark during FY 2025-26. The BSE MidCap index recorded a gain of 7.7 per cent, and the BSE SmallCap index surged significantly by 12.1 per cent.
The Indian rupee, amidst global volatility, exhibited two-way movements but distinguished itself as one of the least volatile emerging market currencies. The stability of the rupee was secured by robust economic fundamentals. These supporting factors include healthy foreign exchange reserves, steady services exports, robust remittances, and the key achievement of a narrower current account deficit.
In summary, India’s economy demonstrated remarkable resilience throughout April-September of FY 2025-26. Overall macroeconomic stability was underpinned by healthy financial markets, stable liquidity conditions, and a well-balanced external sector performance, complemented by inflation staying below projections due to favourable food prices and GST reforms. The economy remains strongly supported by robust consumption, investment, and government spending.
1. RBI Monetary Policy Decision
| Parameter | Current | Previous | Remarks |
|---|---|---|---|
| Repo Rate | 5.50% | 5.50% | Unchanged, Neutral Stance |
| Stance | Neutral | Neutral | Balanced to support growth & stability |
| Key Drivers | Strong domestic demand, stable external sector, resilient markets | Same | Focus on financial stability |
2. GDP Growth Outlook
| Period | Previous Estimate | Revised Estimate | Remarks |
|---|---|---|---|
| FY 2025-26 | 6.5% | 6.8% | Upward revision |
| FY 2026-27 | – | 6.6% | Stable projection |
| Q1 FY26 | 7.4% | 7.8% | Fastest in 7 quarters |
| Q2 FY26 | – | 7.0% | Strong momentum |
| Q3 FY26 | – | 6.4% | Slight moderation |
| Q4 FY26 | – | 6.2% | Gradual easing |
3. Inflation & Prices
| Indicator | Previous Forecast | Revised Forecast | Actual/Notes |
|---|---|---|---|
| CPI Inflation FY 2025-26 | 3.1% | 2.6% | Lowered |
| CPI Inflation Jul 2025 | – | – | 1.6% (8-yr low) |
| CPI Inflation Aug 2025 | – | – | 2.1% |
| Drivers | – | – | 9-month food price decline (10.5%), GST 2.0, mild summer |
4. External Sector & Markets
| Indicator | Current | Previous/YoY | Remarks |
|---|---|---|---|
| CAD (Q1 FY26) | 0.2% of GDP | 0.9% | Narrowed |
| Services Exports | Double-digit growth | – | Strong momentum |
| Remittances (Q1 FY26) | US$ 35.3 bn | – | World’s largest recipient |
| FDI (Apr–Jul 2025) | US$ 37.7 bn | – | Strong inflows, led by SG, US, Mauritius, UAE, NL |
| Sensex (Apr–Sep 2025) | +3.9% | – | Stable |
| BSE MidCap | +7.7% | – | Outperformed |
| BSE SmallCap | +12.1% | – | Outperformed |
| INR | Least volatile EM currency | – | Supported by CAD, exports, FX reserves |
(India CSR)
