RBI sees India’s growth at 6.9% in FY27 despite West Asia risks

India’s economy is expected to maintain a strong growth trajectory in 2026-27 despite escalating geopolitical tensions in West Asia and rising global uncertainties, with the Reserve Bank of India (RBI) projecting real GDP growth of 6.9 per cent for the fiscal year.In its Annual Report 2025-26, the central bank said the outlook for the Indian economy remains positive, supported by robust macroeconomic fundamentals, healthy corporate and banking sector balance sheets, sustained government capital expenditure and progress on trade agreements. However, it cautioned that a prolonged conflict in West Asia could emerge as a key downside risk to growth.“Against the backdrop of moderate global growth, the outlook for the Indian economy in 2026-27 remains positive, supported by strong macroeconomic fundamentals, although a prolonged West Asia conflict may pose downside risk,” the RBI said.

Domestic economy to remain resilient in FY27 despite challenging external environment, says RBI in its annual report.

India's growth prospects supported by robust demand, relatively lower dependence on exports, stable policy environment: RBI report.

Healthy balance sheets of… pic.twitter.com/Uad7RQYvxY

— Press Trust of India (@PTI_News) May 29, 2026

The central bank noted that geopolitical tensions have once again become a major concern for the global economy, with the ongoing conflict in West Asia contributing to higher inflation expectations, uncertainty in financial markets and risks to global trade.Despite these challenges, the RBI expects India to remain among the world’s fastest-growing major economies, underpinned by strong domestic demand, continued investment activity and policy support. The economy expanded by an estimated 7.6 per cent in 2025-26, compared with 7.1 per cent in the previous year.
According to the report, growth during 2025-26 was driven by strong domestic consumption, sustained investments, proactive policy initiatives and sound macroeconomic management. The RBI said these factors are expected to continue supporting economic activity in the coming year.On inflation, the central bank projected Consumer Price Index (CPI) inflation at 4.6 per cent in 2026-27, up from 2.1 per cent recorded in 2025-26. While inflation is expected to remain broadly aligned with the RBI’s medium-term target, the central bank warned that upside risks have intensified.“Inflation in 2026-27 is likely to remain aligned with the target; however, evolving upside risks may emanate from spikes in global fuel and commodity prices amid geopolitical tensions,” the report said.
The RBI also flagged concerns over potential spillovers to input costs, wage pressures and exchange-rate volatility arising from global uncertainties and supply disruptions.The report highlighted the strength of India’s corporate and banking sectors, noting that healthier balance sheets and improved asset quality have enhanced the economy’s ability to withstand external shocks. It added that the government’s continued focus on capital expenditure is expected to further support growth by crowding in private investment and strengthening infrastructure development.
On the fiscal front, the RBI underscored the Centre’s commitment to fiscal consolidation. The gross fiscal deficit(GFD) for 2025-26 stood at 4.4 per cent of GDP, marginally below the government’s medium-term target of 4.5 per cent. For 2026-27, the Centre has budgeted a fiscal deficit of 4.3 per cent of GDP.“GFD is projected at 4.3 per cent of GDP in 2026-27, reflecting the Centre’s continued fiscal consolidation efforts in recent years,” the report noted.The annual report also suggested that monetary policy may remain cautious in the near term as policymakers navigate a delicate balance between supporting growth and containing inflation risks.The Monetary Policy Committee had lowered the repo rate by a cumulative 100 basis points during 2025-26 as inflation moderated significantly. However, in April 2026, the MPC unanimously decided to keep the benchmark repo rate unchanged at 5.25 per cent while maintaining a neutral policy stance.“With the growth-inflation outlook remaining delicately poised amid heightened geopolitical risks, the MPC decided to keep the policy repo rate unchanged,” the RBI said.
Looking ahead, the central bank observed that global policymakers are likely to face increasing challenges in balancing inflation control and economic growth as recurring supply shocks and geopolitical tensions continue to shape the global economic landscape.Even as external headwinds persist, the RBI’s assessment signals confidence in India’s economic resilience, with strong domestic fundamentals expected to help the country navigate a challenging global environment and sustain one of the fastest growth rates among major economies.

(Business Correspondent)