RBI Boosts Growth Forecast to 7% for Early 2026-27 on Strong Demand

Explaining the rationale behind the hike in the growth forecast, Malhotra said, looking ahead, sustained buoyancy in the services sector, GST rationalisation, healthy rabi prospects, monetary easing and benign inflation environment should support private consumption. Investment activity, supported by high capacity utilisation, conducive financial conditions, healthy balance sheets of financial institutions and corporates, robust credit growth and the government's continued thrust on capital expenditure, is expected to maintain its momentum.

Moreover, robust domestic demand is likely to attract fresh investments by the private sector. While services exports are expected to remain strong, merchandise exports will get a boost from the prospective trade deal with the US, the RBI Governor said.

Malhotra also said that the landmark comprehensive trade pact with the European Union, coupled with trade deals with New Zealand and Oman, should help diversify exports and strengthen the external sector. On the other hand, headwinds from geopolitical tensions, uncertain global trade environment, volatility in global financial markets and international commodity prices continue to pose a downside risk.

He further stated that the real gross domestic product (GDP), as per the First Advance Estimates (FAE), is estimated to grow at 7.4 per cent (y-o-y) in 2025-26. Private consumption and fixed investment contributed significantly to overall growth. Net external demand, however, continued to be a drag, with imports outpacing exports. On the supply side, real GVA growth of 7.3 per cent is driven by the buoyant services sector, the resilient agricultural sector and revival in manufacturing activity.

On the external front, he pointed out that the global economy showed remarkable resilience in 2025, aided and supported by trade front-loading, a milder-than-anticipated impact of tariffs, broad fiscal stimulus and accommodative monetary policy.

He said that inflation is on a path of gradual decline, although it remains above target in several advanced economies. US yields are trading with an upward bias amidst receding expectations of imminent rate cuts underpinned by firm economic data. Equities, supported by sustained investment in tech stocks, have advanced, even as fiscal strains, geopolitical uncertainty and monetary policy divergence continue to impart volatility to financial markets.

- IANS