RBI Adjusts GDP Growth Forecast Amid Global Economic Challenges

RBI Revises Economic Growth Projections

Mumbai: The Reserve Bank of India has revised its GDP growth forecast for the fiscal year 2026-27, lowering it to 6.6% from the previously estimated 6.9%. This adjustment is attributed to rising energy prices and ongoing supply chain disruptions linked to the conflict in West Asia, which are expected to impact economic performance.

The central bank highlighted that persistent global supply chain issues, increased volatility in financial markets, and weather-related challenges continue to pose risks to domestic growth.

During the announcement of the June bi-monthly monetary policy, RBI Governor Sanjay Malhotra noted that various high-frequency indicators indicate that domestic economic activity has remained relatively stable since the onset of the conflict.

According to the manufacturing and services PMI, both sectors are showing resilience, and business sentiment remains optimistic.

On the demand front, private consumption has shown strength, and fixed investments have continued to grow despite rising costs.

Merchandise exports experienced robust growth in April 2026, even with high freight and insurance expenses.

Services exports are also performing well, reflecting sustained demand despite concerns surrounding artificial intelligence.

Overall, the economic landscape has demonstrated resilience against the spillover effects of the conflict, although the impact of rising costs is becoming apparent, Malhotra stated.

He added, "Looking ahead, the increase in energy prices and other input costs, along with supply disruptions, is likely to affect economic activity. While diversifying imports of affected commodities may enhance supply, it will come at a higher expense."

The Governor emphasized that the full impact will depend on the duration of the conflict, the time required for supply chains to normalize, and the collaborative approach among stakeholders.

Despite challenges such as weak global demand and high logistics costs affecting merchandise exports, services exports are anticipated to maintain their growth due to healthy demand for Indian services.

Considering all these factors, the real GDP growth for 2026-27 is projected at 6.6%, with quarterly estimates of 6.6% for Q1, 6.3% for Q2, 6.5% for Q3, and 6.8% for Q4, Malhotra concluded.

Regarding the global economy, the Governor noted that the outlook remains uncertain due to the ongoing geopolitical tensions in West Asia, which are driving up energy prices and disrupting global supply chains.

He also mentioned that risk-averse sentiments and demand for safe-haven assets are causing volatility in forex markets, leading to a depreciation trend among many Emerging Market Economy (EME) currencies.