The Reserve Bank of India (RBI) has revised India's GDP growth estimate for the current fiscal year to 6.5 per cent, down from its previous forecast of 6.7 per cent. Announcing the revised estimate, RBI Governor Sanjay Malhotra highlighted that India’s merchandise exports will be affected by global uncertainties.
The GDP Forecast Revision
The RBI Governor said, “Real GDP is now projected for this fiscal 2025-26 at 6.5 per cent, with Q1 at 6.5%, Q2 at 6.7 %, Q3 at 6.6%, and Q4 at 6.3%. While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of recent spike in global volatility. The growth projection for the current year has been marked down by 20 basis points relative to our earlier assessment of 6.7 per cent in the February policy. This downward revision essentially reflects the impact of global trade and policy uncertainties."
The US Reciprocal Tariff Concerns
Sharing the details on tariff concerns, RBI Governor stated that India is engaging vigorously and proactively with the US administration on a foreign trade agreement. He made the statement while highlighting concerns about the impact of the 26 per cent reciprocal tariff imposed by the United States, which came into effect on Wednesday.
The RBI Governor said, “First and foremost, uncertainty in itself dampens growth by affecting investment and spending decisions, both of businesses and households. Second, the dent in global growth due to trade frictions will also impede domestic growth. Third, higher tariffs shall have a negative impact on net exports. The impact of relative tariffs – our relative tariffs vis-à-vis some of the other countries – is quite low. Then there is the unknown of the elasticities of our export and import demand and the policy measures adopted by us.”
RBI’s Inflation Projection
Talking about inflation, RBI Governor stated that the headline inflation moderated during January-February 2025. This, he said, followed a sharp correction in food inflation, and added that the outlook for food inflation has turned decisively positive. Malhotra said, “CPI inflation for the financial year 2025-26 is projected at 4 per cent with Q1 at 3.6 per cent, Q2 at 3.9 per cent, Q3 at 3.8 per cent and Q4 slightly higher at 4.4 per cent."
