The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday projected the real GDP growth for FY26 at 6.7 per cent, slightly higher than the revised estimate of 6.6 per cent for FY25. This, again, was downgraded from 7.2 per cent in the December MPC meeting. While announcing the decision of his first MPC meet, RBI Governor Sanjay Malhotra said that the GDP growth for Q1FY26 is projected at 6.7 per cent; Q2FY26 at 7.0 per cent; Q3FY26 at 6.5 per cent; and Q4FY26 at 6.5 per cent.
He said that economic activity is expected to improve in the coming year. “Agricultural activity remains upbeat on the back of healthy reservoir levels and bright rabi prospects. Manufacturing activity is expected to recover gradually in the second half of this year and beyond. Early corporate results for Q3 indicate a mild recovery in the manufacturing sector. Mining and electricity are rebounding from monsoon related disruptions in Q2. Business expectations remain upbeat, as evidenced from the PMI manufacturing future output index. Services sector activity continues to be resilient. PMI services, however, declined from its recent peak,” Sanjay Malhotra added.
FY24 witnessed a growth of 8.2 per cent. However, with global uncertainties, weakening urban demand, declining exports, and a slowdown in government capital expenditure, the July-September quarter of 2024 saw growth slowing to 5.4 per cent. This was the lowest in seven quarters and called for policy intervention.
On the demand side, the RBI governor said, rural demand continues to be on an uptrend, while urban consumption remains subdued with high frequency indicators providing mixed signals. “Going forward, improving employment conditions, tax relief in the Union Budget, and moderating inflation, together with healthy agricultural activity bode well for household consumption,” Sanjay Malhotra said. In the times to come, he added, the government consumption expenditure is expected to remain modest.
“Higher capacity utilisation levels, robust business expectations and government policy support augur well for growth in fixed investment. Continued buoyancy in services exports will support growth. Global headwinds, however, continue to impart uncertainty to the outlook and pose downward risks. Taking all these factors into consideration, real GDP growth for the next year is projected at 6.7 per cent with Q1 at 6.7 per cent; Q2 at 7.0 per cent; Q3 at 6.5 per cent; and Q4 at 6.5 per cent. The risks are evenly balanced,” Sanjay Malhotra said.
Earlier during the December MPC meeting, the then Governor Shaktikanta Das had projected the GDP growth for the first quarter of the following year at 6.9 per cent, and the second quarter at 7.3 per cent.
Furthermore, the Central government too, in the Union Budget 2025, shifted its focus from capital expenditure to consumption by raising the income tax exemption limit to Rs 12 lakh.
Reacting on this, Killol Pandya, Senior Fund Manager – Debt, JM Financial Asset Management, said, “RBI lowered its Gross Domestic Production (GDP) projection for FY24-25 to 6.4 per cent (Vs 6.6 per cent earlier) and stated its GDP expectations for FY 25-26 at 6.7 per cent. RBI expressed its view of a resurgent growth and softening in inflation in the coming months, but reiterated the need for vigilance at this juncture, given the risks posed by uncertainty regarding global macroeconomic conditions and commodity prices.”
Dr Ravi Singh, SVP- Retail Research, Religare Broking Ltd, said, “According to the First Advance Estimates (FAE), a real GDP is expected to grow by 6.4 per cent YoY in FY25, driven by a recovery in private consumption. Growth is supported by the services and agriculture sectors, while industrial growth remains weak. Key growth drivers include strong household consumption due to tax relief in the Union Budget, improved fixed investment, and resilient services exports.”
