RBI Lifts FY26 Growth Outlook As India Edges Closer To Fourth-Largest Economy Status

The Reserve Bank of India (RBI) has revised its growth projections for the 2025–26 financial year, signalling stronger-than-expected economic momentum.

The Monetary Policy Committee (MPC) on Friday increased the GDP forecast to 7.3%, up from the earlier estimate of 6.8%.

According to the central bank, the quarterly outlook has also improved. Economists now peg Q3 FY26 growth at 7.0%, and they estimate that Q4 FY26 will rise to 6.5%.

Projections for the following year indicate further stability, with Q1 FY27 anticipated at 6.7% and Q2 FY27 at 6.8%.

RBI Governor Sanjay Malhotra noted that the first half of the financial year benefited from rationalised tax structures, lower crude oil prices, early implementation of government capital expenditure, and supportive financial conditions, aided by moderate inflation.

High-frequency indicators continue to show resilience in the third quarter, though he acknowledged mild softness in select leading metrics.

The upward revision aligns with the robust 8.2% GDP growth recorded in the July–September quarter, the fastest in six quarters, boosted by buoyant consumer demand and the late-quarter reduction in GST on several items.

India posted 7.8% growth in the preceding quarter and 5.6% in the same period last year, partly benefiting from a favourable base effect. The economy expanded 6.5% in FY25 overall.

Rural Revival and Global Headwinds

Economists attribute rising rural consumption to improved agricultural output and easing inflationary pressures. This trend is expected to continue into FY27, said DK Pant of India Ratings and Research.

Meanwhile, India and the United States are negotiating a trade agreement at a time when Washington has imposed a 50% tariff on Indian goods, including penalties linked to Russian oil imports. Analysts believe a successful deal could lift India’s growth rate close to 8%.

The IMF’s World Economic Outlook states that India will overtake Japan and become the world’s fourth-largest economy by the end of 2025.

The country has risen rapidly over the past decade, moving from tenth to fifth place before embarking on its current trajectory towards the fourth position.

Government reforms, steady macroeconomic fundamentals, and sustained domestic demand continue to underpin this rise.

Also Read: Indian Markets End Week Lower Despite RBI Rate Cut Boost