The Reserve Bank of India (RBI) has projected Consumer Price Index (CPI) inflation at 4.0% for FY26, firmly placing it within the central bank’s comfort range of 2% to 6%. The announcement was made by RBI Governor Sanjay Malhotra during the first bi-monthly Monetary Policy Committee (MPC) meeting of FY26.

Governor Malhotra noted that the sharper-than-expected decline in food prices has provided much-needed relief on the inflation front. “There is now greater confidence of durable alignment of headline inflation with the target of 4% over the 12-month horizon,” he said.

GDP growth revised down to 6.5% for FY26

Alongside the inflation projection, the RBI revised India’s real GDP growth forecast for FY26 to 6.5%, down from its earlier estimate of 6.7%. Malhotra attributed this markdown of 20 basis points to heightened global uncertainties, particularly stemming from trade tensions and a recent surge in volatility.

“While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of the recent spike in global volatility,” Malhotra stated.

Sector-wise growth outlook

The central bank offered a detailed assessment of sectoral performance for FY26:

  • The agriculture sector is expected to perform strongly, supported by healthy reservoir levels and robust crop output.

  • The manufacturing sector is showing signs of a revival, buoyed by improved business expectations.

  • The services sector remains resilient and continues to contribute steadily to GDP growth.

Demand-side dynamics

  • Rural demand is set to benefit from a strong agricultural outlook.

  • Urban consumption is showing improvement, aided by rising discretionary spending.

  • Investment activity has picked up pace and is expected to improve further, backed by:

    • Higher capacity utilization

    • Strong infrastructure spending by the government

    • Healthy corporate and banking balance sheets

    • Easing financial conditions

Trade outlook

While services exports are projected to stay resilient, merchandise exports face headwinds due to global trade disruptions and uncertain geopolitical developments.

Taking all these factors into account, the RBI now expects India’s real GDP to grow at 6.5% in FY2025-26, with quarter-wise projections as follows:

  • Q1: 6.5%

  • Q2: 6.7%

  • Q3: 6.6%

  • Q4: 6.3%

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