India’s growth outlook remains resilient, supported by domestic drivers, despite weak external demand. It is likely to get further support from a favourable monsoon, lower inflation, monetary easing and the salubrious impact of recent GST reforms, the RBI said on Wednesday.
Although the growth projection for the financial year 2025-26 is being revised upwards, “the forward-looking projections for Q3 and beyond are expected to be slightly lower than projected earlier, primarily due to tariff-related developments, despite being partially offset by the impetus provided by the rationalisation of GST rates,” according to the minutes of the Monetary Policy Committee (MPC) meeting held from 29 Sept-1 Oct, & released by the central bank.Domestic economic growth was resilient in Q1 2025-26.
High-frequency indicators suggest that it is likely to remain strong in Q2. “Thereafter, however, it is expected to soften due to the impact of tariffs, although the GST rationalisation would partially cushion the impact. Several indicators suggest that agricultural prospects are bright in the current year; consequently, rural demand is likely to be buoyant,” MPC minutes said. Strong services sector growth & steady employment conditions would support growth.
“External demand, however, is likely to remain lukewarm in the wake of prevailing tariff and trade-related uncertainties. On the whole, growth outcome for 2025-26 is now expected to be higher at 6.8 per cent than 6.5 per cent envisaged in the Aug policy, even as the outlook from H2 onwards is softer,” the RBI highlighted. Headline CPI inflation moderated to an eight-year low of 1.6 per cent in July before inching up to 2.1 per cent in August.