RBI GDP Growth 2026: Malhotra & Co raise FY27 GDP forecast to 7.1% from 6.7%

The Reserve Bank of India (RBI) raised its forecast for India's economic growth in fiscal 2026-27 by 40 basis points to 7.1% from 6.7% on Wednesday, citing resilient domestic activity and strong investment and consumption even as global trade uncertainty, geopolitical tensions, elevated commodity prices and weather risks pose headwinds to the outlook.

The Monetary Policy Committee (MPC) increased the policy repo rate by 25 basis points to 5.5% after a detailed assessment of evolving macroeconomic and financial conditions, developments and the outlook.

Also Read: Why RBI MPC lifted repo rates for the first time in nearly four years in October policy


An ET poll of economists had widely expected the RBI to raise the repo rate by 25 basis points to 5.50% in its October policy, on persistent inflationary pressures and higher crude prices.

The growth upgrade marks a further shift in the RBI's assessment of the economy since its August policy, when the central bank raised its FY27 growth forecast by 10 basis points to 6.7% from 6.6%.

The RBI had then projected growth at 7% in the first quarter, 6.4% in the second, 6.5% in the third and 6.8% in the fourth quarter of FY27.

Since then, the economy has delivered stronger-than-expected 7.8% growth in the June quarter, prompting a wave of upgrades from global forecasters. The RBI now projected growth at 7.2% in the second quarter, 6.9% in the third and 6.8% in the fourth quarter, while real GDP growth in the first quarter of FY28 was projected at 7.1%.

The 40-basis-point upward revision in the full-year growth forecast further underscored the strength of economic activity despite significant headwinds, RBI Governor Sanjay Malhotra said.

The six-member panel also changed its policy stance from neutral to calibrated tightening, signalling a greater focus on containing inflation as price pressures build.

Growth outlook gets a broad upgrade

Earlier this week, the World Bank raised its FY27 growth forecast for India to 7.1% from 6.6%, adding to a slew of upgrades from global forecasters. It said resilient domestic consumption had helped the economy absorb the shock of higher energy prices, although elevated oil prices and the risk of an El Niño remained key threats.

Also Read: RBI MPC Meeting at a Glance: Your one step guide for all decisions

The upgrade came after a stronger-than-expected first quarter, which has prompted major forecasters to reassess how much momentum the Indian economy is carrying into the rest of the year. The OECD now sees growth at 7.1%, while S&P Global Ratings, the Asian Development Bank and Moody’s expect it to be around 7%. Fitch is slightly more cautious at 6.9%.

The broad message is clear: India’s domestic economy has proved more resilient than expected. Consumption has held up, investment has remained supportive and manufacturing and services have continued to expand, cushioning the economy from weaker global demand and a series of external shocks.

That resilience is particularly important because the economy has been absorbing a difficult mix of high oil prices, geopolitical tensions and global trade uncertainty. The World Bank expects domestic consumption to remain a key growth engine, with public investment and stronger industrial activity helping sustain momentum even as private investment remains uneven.

7.8% GDP growth changes the RBI's starting point

The 7.8% June-quarter growth gave policymakers greater confidence that domestic demand was holding up better than expected.

At its August policy, the central bank had already described economic activity as resilient, pointing to healthy consumption, services, investment and government spending.

But it had also warned that global trade uncertainty, the West Asia conflict and weather shocks could weigh on growth.

The stronger first-quarter print has since shifted the conversation. While some high-frequency indicators have softened in July and August, the broader growth momentum remains firm. That resilience has also given economists more confidence that the economy can absorb some monetary tightening.

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“Growth has withstood the shocks of the West Asia war and there is more confidence now that the economy will be able to withstand a moderate tightening of policy rates,” Yes Bank chief economist Indranil Pan said in a report on October 1.

The RBI is therefore approaching the October policy with a stronger growth cushion than it had in August — even as the inflation outlook has become more challenging.

First rate hike in years

The ET poll showed just how sharply the mood has turned since August.

The shift marks the first rate increase since February 2023, when the repo rate was taken to 6.50%, and would signal the RBI's return to tightening after a long pause.

The case for a hike strengthened as the inflation outlook has darkened.

Crude has stayed above $100 a barrel, a patchy monsoon has raised concerns over food prices, and the US Federal Reserve's recent hike has narrowed the interest-rate gap between the two economies. Together, these pressures are making it harder for the RBI to look through what could otherwise have been seen as temporary supply shocks.

Check live updates on the RBI MPC decisions

The shift may also mark the beginning of a longer tightening cycle rather than a one-off move.

Goldman Sachs has brought forward its call for rate increases and now expects 25-basis-point hikes in December 2026 and February 2027, after earlier seeing the cycle begin in October.

Global and weather risks remain

Despite persistent global headwinds, the Indian economy has remained resilient, with strong consumption and investment, a rebound in merchandise exports and buoyant services exports supporting growth. Manufacturing continued to grow at a robust pace, while services activity strengthened on strong domestic and external demand.

High-frequency indicators for July-August also pointed to sustained momentum in domestic activity. The RBI said domestic demand remained resilient, supported by robust external demand and double-digit merchandise export growth.

The outlook, however, remains clouded by global uncertainty. Energy prices and supply-chain pressures continue to pose risks, particularly as the West Asia conflict keeps their trajectory uncertain. The RBI said the impact was being contained through active diversification of supply sources.

A deficient southwest monsoon and strong El Niño conditions could weigh on agriculture and rural demand, although healthy foodgrain buffers and government interventions are expected to cushion the impact. At the same time, steady services activity and broadly stable employment should support urban demand, while strong capacity utilisation, robust credit flows and government infrastructure spending are expected to sustain investment.

The RBI expects services exports to remain buoyant, while recently operationalised bilateral trade agreements should support merchandise exports. Taking these factors into account, it projected FY27 real GDP growth at 7.1%, with risks evenly balanced.

Governor Sanjay Malhotra said the current conditions left little room for a rate cut in the near term, with policy action ahead limited to either a hike or a pause depending on how the outlook evolves.

“Given the current conditions, rate cuts are off the table in the near term. Policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook,” Malhotra said.