| Strong domestic drivers support growth momentum.
Energy prices and geopolitical tensions pose risks. Consumption supports growth; exports face pressure. External shocks and financial volatility may weigh on growth. |
The Reserve Bank of India (RBI) has projected real GDP growth at 6.9 per cent for 2026-27, with risks tilted to the downside due to elevated uncertainty from the ongoing West Asia conflict, potential supply disruptions and global financial volatility.
“Real GDP growth for 2026-27 is projected at 6.9 per cent, with Q1 at 6.8 per cent; Q2 at 6.7 per cent; Q3 at 7.0 per cent; and Q4 at 7.2 per cent. Further escalation and wider spread of the conflict, heightened volatility in global financial markets and weather-related events, however, weigh on the domestic growth outlook. Risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict,” RBI governor Sanjay Malhotra said in his Monetary Policy Statement.
The outlook
On the outlook, elevated energy and other commodity prices, along with disruptions in the Strait of Hormuz, are likely to impact growth in 2026-27, the governor said. The government has been proactive in ensuring the supply of inputs across critical sectors to minimise the impact of supply chain disruptions.
At the same time, sustained momentum in the services sector, the impact of GST rationalisation and healthy balance sheets of financial institutions and corporates are expected to support economic activity, he said. Agricultural prospects are supported by healthy reservoir levels, while business expectations remain optimistic and leading indicators point to continued resilience in manufacturing and services.
On the demand side, private consumption in 2026-27 is expected to be supported by discretionary spending, with rural demand remaining robust and likely to gain further traction on favourable agricultural conditions and a healthy labour market. Urban consumption is expected to strengthen further, aided by GST rationalisation and buoyant services activity, Malhotra said.
While the government’s thrust on infrastructure spending continues, the revival in private sector investment is expected to sustain, supported by high capacity utilisation, strong credit growth and benign financial conditions.
On the external front, merchandise exports could be adversely impacted by disruptions to key shipping routes, higher freight and insurance costs and weaker global demand due to the conflict. However, exports may benefit from recent trade agreements, while services exports are expected to remain resilient.
The geopolitical conflict
The RBI said the Indian economy may be impacted by the ongoing geopolitical conflict through several channels. Elevated crude oil prices could increase imported inflation and widen the current account deficit. Disruptions in energy markets, fertilisers and other commodities may adversely impact industry, agriculture and services, reducing domestic output, the governor said. Heightened uncertainty, increased risk aversion and safe haven demand could impact domestic liquidity conditions, economic activity, consumption and investment.
Weaker global growth prospects may dampen external demand and reduce remittance flows, while adverse spillovers from global financial markets could tighten domestic financial conditions and raise the cost of borrowing. The RBI said the initial supply shock can potentially transform into a demand shock over the medium term if the restoration of supply chains is delayed.
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