RBI Cuts GDP Growth Forecast to 6.5% for 2025-26 Amid Rising Global Uncertainties

Mumbai(The Uttam Hindu): The Reserve Bank of India (RBI) has revised its GDP growth forecast for 2025-26, lowering it by 20 basis points to 6.5% from the earlier projection of 6.7%. This adjustment is in response to global trade and policy uncertainties, particularly stemming from recent US tariff hikes, according to RBI Governor Sanjay Malhotra. Malhotra explained that uncertainties themselves dampen growth by affecting both business investment and household spending decisions. Additionally, global growth disruptions due to trade tensions and higher tariffs are expected to hinder India’s domestic economic performance. He noted that these higher tariffs would negatively impact net exports.

While these global challenges are significant, Malhotra acknowledged the difficulty in quantifying their full impact, given the complex factors at play, such as the elasticity of India’s export and import demands, as well as the government’s proposed Foreign Trade Agreement with the US. Taking all these factors into account, the RBI now projects India’s real GDP growth at 6.5% for 2025-26, with quarterly growth rates estimated as follows: 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. Despite these projections, Malhotra emphasized that uncertainties remain elevated due to recent global volatility.

For the current year, the RBI estimates a 6.5% growth for 2024-25, following a robust 9.2% growth in the previous year. On a positive note, the agriculture sector's outlook remains strong, supported by healthy reservoir levels and robust crop production. Manufacturing activity is showing signs of revival, with business expectations staying positive, and the services sector continues to perform well. From a demand perspective, the agricultural sector is expected to drive strong rural demand, while urban consumption is gradually picking up, particularly in discretionary spending. Investment activity is gaining momentum, driven by higher capacity utilization, ongoing government infrastructure spending, strong corporate and bank balance sheets, and improved financial conditions. While global uncertainties continue to weigh on merchandise exports, services exports are expected to remain resilient, with global trade disruptions continuing to pose risks to the overall economic outlook, Malhotra added.