The Reserve Bank of India (RBI) has increased its real GDP growth forecast for fiscal year 2026 (FY26) to 6.8% from the previous projection of 6.5%. This revision reflects growing confidence in the Indian economy's underlying momentum, driven by sustained consumer demand, increased public spending, and a robust pipeline of infrastructure investments.

The upward revision comes as the Monetary Policy Committee (MPC) held the repo rate steady at 5.50% and maintained a neutral stance. This suggests that the RBI is comfortable with the current policy settings and sees the need to support economic growth.

Key Factors Driving the Revision

• Sustained Consumer Demand: Strong consumer demand continues to be a major driver of economic growth in India.
• Rising Public Spending: Increased government spending, particularly on infrastructure development, is also contributing to the improved outlook.
• Infrastructure Investments: A strong pipeline of infrastructure projects is expected to boost economic activity and create jobs.

RBI's Assessment

The RBI's policy statement indicates confidence in managing inflation and external risks, further bolstering its positive economic outlook. The central bank has also lowered its consumer price index (CPI) inflation forecast for FY26 to 2.6%, down from the earlier estimate of 3.1%.

Quarterly Growth Projections

The RBI's quarterly growth projections for FY26 reflect a mixed trend:

• Q2 FY26: 7.0% (increased from 6.7%)
• Q3 FY26: 6.4% (decreased from 6.6%)
• Q4 FY26: 6.2% (decreased from 6.3%)
• Q1 FY27: 6.4% (decreased from 6.6%)

Risks and Uncertainties

Despite the improved outlook, the RBI has cautioned about potential downside risks, including tariff and trade policy uncertainties and persistent geopolitical tensions, which could weigh on demand and financial markets.

Expert Opinions and Alternative Forecasts

While the RBI has revised its GDP growth forecast upward, other organizations have presented more conservative estimates. The Asian Development Bank (ADB) lowered India's FY26 GDP growth forecast to 6.5% from an earlier estimate of 6.7%, citing the impact of additional US tariffs on exports. Similarly, rating agency Icra has also projected a 6.5% growth for FY26, factoring in the positive impact of GST rationalization and a strong Q1 performance. These projections consider the potential impact of US tariffs on Indian exports, which could reduce growth, particularly in the second half of FY26 and in FY27.

Market Response

Investors have responded positively to the RBI's announcement. India's benchmark 10-year bond yield dipped 2 basis points to 6.553% after the announcement, reflecting market confidence in the central bank's economic assessment.