The Reserve Bank of India (RBI) on Friday lowered its GDP growth forecast for the financial year 2026-27 to 6.6 per cent, down from the 6.9 per cent estimated in April. The revision is attributed to elevated energy and commodity prices, as well as continued supply disruptions arising from the ongoing conflict in West Asia, which are expected to weigh on economic activity.
Downside Risks to Growth
The central bank highlighted that prolonged global supply-chain disruptions, heightened volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook. Announcing the June bi-monthly monetary policy, RBI Governor Sanjay Malhotra noted that several high-frequency indicators suggest domestic economic activity has remained largely steady since the outbreak of the conflict.
Resilient Sectors
Malhotra stated that India's manufacturing and services PMI indicate that both sectors remain resilient, with business expectations still positive. On the demand side, private consumption has stayed resilient, and fixed investment has maintained its momentum despite rising cost pressures. Merchandise exports recorded strong growth in April 2026, notwithstanding elevated freight and insurance costs. Services exports are also holding up well, reflecting sustained demand despite concerns about artificial intelligence.
Impact of Rising Costs
Overall, the economic situation has broadly exhibited resilience and withstood the conflict spillovers, although the impact of rising cost pressures is becoming visible, Malhotra said. Going ahead, the rise in prices of energy and other inputs, coupled with supply disruptions, is likely to weigh on economic activity. While import diversification in affected commodities is likely to improve supply, it would come at a higher cost.
Duration and Uncertainty
The Governor further said that the full impact will depend on the duration of the conflict, the time taken for normalization of supply chains, and the burden-sharing approach among stakeholders. While weak global demand and high logistics costs are headwinds for merchandise exports, services exports are expected to sustain their momentum as demand for Indian services remains healthy.
Quarterly GDP Projections
Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 6.6 per cent, with Q1 at 6.6 per cent, Q2 at 6.3 per cent, Q3 at 6.5 per cent, and Q4 at 6.8 per cent, Malhotra announced.
Global Economic Outlook
On the global economy, the Governor said the outlook remains clouded by the continuing geopolitical impasse in West Asia, as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity. Risk-off sentiments and safe-haven demand are imparting volatility to forex markets, with a depreciating trend across many Emerging Market Economy (EME) currencies.
