RBI raises FY27 GDP growth forecast to 6.7%; flags West Asia tensions, weak monsoon risks

The Reserve Bank of India (RBI) on Wednesday raised its growth forecast for the current financial year to 6.7% from 6.6% projected in June, saying the domestic economy performed better than expected in the first quarter despite persistent global uncertainty.

Announcing the bi-monthly monetary policy, RBI Governor Sanjay Malhotra said real GDP growth for 2026-27 is now projected at 6.7%, 10 basis points higher than the previous estimate.

The central bank projected GDP growth at 7% in the first quarter, 6.4% in the second quarter, 6.5% in the third quarter and 6.8% in the fourth quarter.

The risks to the outlook are "evenly balanced", he said.

In its June policy review, the RBI had lowered its FY27 GDP growth forecast to 6.6% from 6.9% estimated in April, citing prolonged geopolitical tensions in West Asia, elevated commodity prices and the possibility of a deficient monsoon.

Malhotra said supply-side pressures arising from the West Asia conflict had eased since June, leading to the withdrawal of temporary measures undertaken by the government and the normalisation of key input supplies.

However, he warned that the renewed escalation of the conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty over global supply chains.

"Amidst persistent global uncertainty, domestic economic activity has exhibited resilience," Malhotra said, pointing to high-frequency indicators available for the first quarter.

He said early corporate results for the April-June quarter indicate healthy performance in the manufacturing sector, corroborated by expansionary purchasing managers' index (PMI) readings.

Malhotra said the outlook for agriculture remains clouded by deficient and uneven southwest monsoon rainfall under El Nino conditions.

However, reservoir levels close to normal, crop diversification initiatives, promotion of short-duration and climate-resilient crops, and water harvesting and conservation measures are expected to mitigate the impact of deficient rainfall.

He said the manufacturing sector may face cost pressures, but increasing diversification of global supply chains should help cushion the impact.

On the demand side, the impact of a weak monsoon on rural consumption may be partly offset by allied sector activities and various government schemes.

The RBI governor also said net external demand is likely to benefit from recently concluded bilateral trade agreements, their operationalisation, and market diversification efforts by Indian manufacturers.