RBI projects India's GDP growth at 6.9% in FY27 and CPI inflation at 4.6%, with inflation risks tilted to the upside.
The central bank flagged the West Asia crisis as a key risk, warning of downside risks to growth and potential pressure on crude oil prices and inflation.
Domestic demand, investment and services activity remained strong in FY26, while the impact of US tariffs on exports remained largely contained.
2025 was a tumultuous year for the Indian economy. In FY26, the rupee emerged as the worst-performing Asian currency, though macroeconomic fundamentals remained resilient. US President Donald Trump's reciprocal tariffs of 50%, among the highest imposed on an economy in the region, also weighed on the economy, though growth remained resilient and demand stayed robust.
According to the annual report published by the Reserve Bank of India on Friday, real gross domestic product (GDP) growth is estimated at 6.9% for FY27, while consumer price index (CPI) inflation is projected at 4.6% during the same period, with risks tilted to the upside.
1 May 2026
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Economic concerns are now rising as the world grapples with the ongoing West Asia crisis. Global crude prices are struggling to settle below $100 per barrel, the rupee has already fallen nearly 6% so far this year against the greenback, and inflation concerns are mounting, making it challenging for policymakers.
FY27 Prospects
According to the annual report, geopolitical risk remains one of the major threats to both domestic and global growth in 2026. The economic fallout from the West Asia crisis is expected to pose downside risks to growth and upside risks to inflation.
The International Monetary Fund, assuming a limited duration of the conflict, projects the global economy to grow by 3.1%, down from its earlier estimate of 3.3%.
Against this backdrop, the domestic economy is expected to remain on a positive trajectory, driven by strong macroeconomic fundamentals and healthy corporate balance sheets.
Resilience Against Global Headwinds
The Indian economy remained on a strong and steady growth path despite global headwinds. In FY26, aggregate demand grew by 7.6%, compared with 7.1% a year earlier, while GDP growth was driven by private final consumption expenditure and fixed investment.
The RBI also noted that the impact of US tariffs on the external sector was contained, with only a limited adverse effect on exports.
"The imposition of steep tariffs by the US on its trading partners initially raised concerns about a possible drag on the external sector and overall GDP growth," the RBI said in its annual report. "However, the adverse spillovers remained contained, with net exports exerting only a marginal drag of 0.1 percentage points in 2025-26."
Domestic consumption also remained robust, with growth momentum driven by steady rural consumption and improving urban demand.
The central bank partially attributed the rise in urban demand to recent income tax reductions and goods and services tax (GST) rationalisation. The gross domestic investment rate remained stable at 34.3% in FY25.
"Government-led capital expenditure continued to play a counter-cyclical role, helping to crowd in private investment. India's sovereign credit rating upgrade in August 2025 further reinforced investor confidence," the report said.
However, the agriculture and allied sectors witnessed moderation in FY26 owing to weather-related disruptions to kharif crops, though favourable conditions during the rabi season provided support.
"As at end-March 2026, the overall public stock of foodgrains held by the Food Corporation of India is more than four times the buffer requirement, mainly due to high rice stocks," the RBI said.
The central bank also warned of a likely adverse impact from El Niño conditions during the upcoming kharif season.
The manufacturing sector remained resilient and posted strong growth, with 16 of 23 industry groups reporting expansion in FY26.
The services sector grew 8.7% in FY26, driven by broad-based expansion across trade, transport, hotels and restaurants, as well as financial, real estate and professional services.
Employment conditions in the country remained stable, with the worker population ratio and unemployment rate registering only marginal changes.
"Recently enacted labour reforms are expected to improve labour market flexibility and reduce compliance burdens while ensuring universal social security coverage, statutory minimum wages, and enhanced health and safety provisions, thereby encouraging formal job creation, worker well-being, and enterprise expansion," the RBI said.
