India's Economic Resilience Shines Amid Global Headwinds, Says RBI Governor
Reserve Bank of India Governor Sanjay Malhotra has declared that the Indian economy remains firmly on a strong footing, characterized by robust growth and subdued inflation, even as geopolitical tensions and trade uncertainties intensify across the globe. Presenting the first monetary policy of the calendar year 2026, Governor Malhotra emphasized that India has navigated global challenges more effectively than many peer economies.
Monetary Policy Decisions and Growth Forecasts
The Monetary Policy Committee of the RBI has opted to maintain the key policy rate, the Repo rate, unchanged at 5.25 percent. In a significant move, the committee has raised the GDP growth forecast by 10 basis points to 7.4 percent for the fiscal year 2026. This upward revision reflects confidence in the economy's sustained momentum.
Governor Malhotra noted, "Amid heightened geopolitical tensions and elevated uncertainty, the Indian economy is in a good spot with strong growth and low inflation." He added that inflation remains below the tolerance band, with a benign outlook supported by domestic factors.
Drivers of Economic Growth and Momentum
High-frequency indicators point to a continuation of strong growth momentum into the third quarter of 2025-26 and beyond. The economy benefits from several key drivers:
- Domestic Demand: Resilient services activity and improving manufacturing performance are bolstering growth.
- Trade Developments: Recent agreements, including a landmark free trade pact with the European Union and a trade deal with the United States, are expected to sustain growth by supporting exports and investment over the long term.
- Consumption Recovery: Urban consumption is set to strengthen further, aided by GST rationalization and monetary easing measures.
- Investment Activity: High capacity utilization, accelerating bank credit, conducive financial conditions, and continued government emphasis on infrastructure spending are providing a significant impetus to investments.
Additionally, several measures announced in the recent Budget are anticipated to be conducive to sustained economic expansion.
Global Context and Domestic Outlook
At the global level, growth is projected to be marginally stronger in 2026, driven by technology-led investments, accommodative financial conditions, and large-scale fiscal stimulus. However, Governor Malhotra cautioned that escalating geopolitical frictions and rising trade tensions are beginning to disrupt the existing world economic order. Inflation trends remain uneven across countries, staying above targets in most advanced economies, leading to divergence in monetary policy actions as central banks approach the end of their easing cycles.
Turning to the domestic outlook, real GDP growth is expected to remain resilient. According to the First Advance Estimates, India's economy is projected to grow by 7.4 percent in 2025-26, significantly higher than the previous year. This growth has been primarily driven by private consumption and fixed investment, although net external demand has been a drag due to imports outpacing exports.
On the supply side, growth in gross value added has been supported by a strong performance in the services sector and a revival in manufacturing activity. Looking ahead to 2026-27, economic activity is anticipated to hold up well, supported by healthy agricultural prospects, firm construction activity, and resilient services demand.
Inflation Trends and Future Projections
On the inflation front, headline consumer price inflation remained low in November and December, despite a marginal firming up due to a moderation in food price deflation. Core inflation, excluding the impact of gold prices, has remained stable and subdued. The near-term inflation outlook remains favourable, supported by healthy food supply conditions, adequate buffer stocks, and favourable crop prospects.
However, Governor Malhotra flagged potential risks from geopolitical uncertainty, volatile energy prices, and adverse weather events. The MPC has marginally raised the inflation forecast to 2.1 percent from 2 percent for FY2026. For the first half of 2026-27, CPI inflation projections have been revised to 4.0 percent in the first quarter and 4.2 percent in the second quarter, aligning closely with the inflation target.
The Governor emphasized, "Underlying inflation pressures remain muted and risks are evenly balanced." He highlighted that benign inflation provides policy space to remain supportive of growth while safeguarding financial stability.
Conclusion: Commitment to Sustained Growth
In summary, Governor Sanjay Malhotra affirmed that the Indian economy continues to register high growth despite a challenging global environment. The combination of strong domestic fundamentals and prudent policy measures positions India favorably amid global uncertainties. "We remain committed to meeting the productive requirements of the economy and sustaining the growth momentum," he concluded, underscoring the RBI's dedication to fostering economic resilience and stability.
