RBI lowers FY27 GDP growth to 6.6%, flags downside risks from West Asia conflict

Reserve Bank of India (RBI) on Friday lowered its GDP forecast for FY2026-27 to 6.6% from 6.9% estimated in April, warning that prolonged geopolitical tensions in West Asia, elevated commodity prices and a likely deficient monsoon could pose downside risks to the outlook.

Announcing the outcome of the Monetary Policy Committee (MPC) meeting, RBI Governor Sanjay Malhotra said real GDP growth is projected at 6.6% in the current fiscal, with quarterly growth estimated at 6.6% in the first quarter, 6.3% in the second, 6.5% in the third and 6.8% in the fourth quarter.

Malhotra noted that domestic economic activity has remained largely steady despite the outbreak of the conflict in West Asia.

The RBI governor highlighted that private consumption has been resilient, while fixed investment maintained its momentum despite cost pressures.

Merchandise exports posted strong growth in April 2026, while services exports continued to remain robust, he said.

"While the economy has withstood the conflict spillovers with limited impact so far; the strains are increasingly becoming visible," Malhotra said in the MPC statement.

The RBI said elevated energy and commodity prices and continuing supply disruptions are likely to weigh on economic activity.

The central bank also flagged concerns over the south-west monsoon, which is expected to be deficient this year, potentially affecting agricultural output and rural demand.

However, it said government initiatives related to crop diversification, water conservation and climate-resilient farming practices are expected to mitigate some of the adverse impact.

The RBI said several government measures, including support for MSMEs and exporters, efforts to boost domestic crude oil and gas production, promotion of import substitutes and diversification of critical imports, have strengthened the economy's resilience to "cope with external shocks."

"Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 6.6%, with Q1 at 6.6%; Q2 at 6.3%; Q3 at 6.5%; and Q4 at 6.8%," RBI said.