A sharper-than-expected Gross Domestic Product (GDP) growth of 8.2 per cent in the second quarter of 2025-26 encouraged the Reserve Bank of India (RBI) to raise its GDP growth projection for the current fiscal to 7.3 per cent, from it earlier estimate of 6.8 per cent.
The GDP registered a six-quarter high growth on the back of resilient domestic demand despite global trade and policy uncertainties.
On the supply side, real Gross Value Added (GVA) expanded by 8.1 per cent, aided by buoyant industrial and services sectors.
Unveiling the December monetary policy, the Reserve Bank Governor, Sanjay Malhotra, said economic activity during the first half of 2025-26 benefited from income tax and Goods and Services Tax (GST) rationalisation, softer crude oil prices, front-loading of government capital expenditure, and facilitative monetary and financial conditions supported by benign inflation.
“GST rationalisation and festival-related spending supported domestic demand during October-November,” he said, adding that high-frequency indicators suggest that domestic economic activity is holding up in the October-December quarter, although there are some emerging signs of weakness in few leading indicators.
However, rural demand continues to be robust while urban demand is recovering steadily, Malhotra stated.
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Manufacturing activity continues to improve, while the services sector is maintaining a steady pace, even though merchandise exports declined sharply in October amid subdued external demand, accompanied by softer services exports, he noted.
“Taking all these factors into consideration, real GDP growth for 2025-26 is projected at 7.3 per cent, with Q3 at 7 per cent; and Q4 at 6.5 per cent. Real GDP growth for Q1 of 2026-27 is projected at 6.7 per cent and Q2 at 6.8 per cent. The risks are evenly balanced,” he said.
On the external front, the governor said Foreign Direct Investment (FDI) to India increased at a robust pace during the first half of the year, partly due to a decline in repatriation despite a rise in outward FDI.
However, Foreign Portfolio Investment (FPI) to India recorded net outflows of USD 0.7 billion in 2025-26 so far (April-December 03), due to outflows in the equity segment.
As on November 28, 2025, India’s foreign exchange reserves stood at USD 686.2 billion, providing a robust import cover of more than 11 months, Malhotra said.
“Overall, India’s external sector remains resilient. We are confident of meeting our external financing requirements comfortably,” he said.
India’s current account deficit moderated from 2.2 per cent of GDP in Q2 of 2024-25 to 1.3 per cent in Q2 of 2025-26 on account of robust services exports and strong remittances.
Evolving geopolitical and trade environments, however, continue to weigh on the outlook, he added.
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