India’s economy is set to grow faster than expected – the Reserve Bank of India (RBI) now expects growth of 7.3% in the fiscal year 2025‑26, up from its earlier 6.8% forecast. At the same time, it lowered the inflation outlook to 2%.
Why the RBI Raised the Growth Forecast
- Strong private consumption:** Rural demand stayed firm and households are spending more, especially on food and essentials.
- Investment picks up:** Companies are investing in new projects, helping the economy expand.
- Easing price pressures:** Food prices have slowed, keeping overall inflation lower.
Recent Economic Performance
The economy grew 8.2% in the second quarter of this year – the fastest pace in six quarters. The growth was driven mainly by consumer spending and higher investment.
Challenges Remaining
- Export drag:** Higher tariffs on Indian goods headed to the United States have reduced export growth.
- External risks:** Global trade policy shifts and supply‑chain disruptions could affect future growth.
Inflation and Monetary Policy
Headline CPI inflation rose slightly to 0.7% in November, but it remains well below the RBI’s upper tolerance limit. Core inflation stayed steady at 4.3%, while core‑excluding‑gold‑and‑silver fell to 2.4%.
In December, the RBI cut the policy repo rate by 25 basis points, bringing it to 5.25%, to keep growth supported while inflation stays under control.
External Sector Outlook
- Current‑account deficit:** It narrowed thanks to strong services exports and remittances from abroad, despite slower capital inflows.
- Rupee:** The rupee weakened in November because of weaker foreign portfolio flows and uncertainty over the India‑US trade deal, though its volatility stayed lower than many major currencies.
- Equity markets:** Indian stocks rose early in November on the rate cut and solid earnings, but later faced choppiness as global risk sentiment soured.
What This Means for Retail Investors
Higher growth expectations could lift earnings expectations for Indian companies, especially those linked to consumer spending and domestic services. However, watch for any sudden changes in export demand or global risk sentiment that could affect market sentiment.
Takeaway
The RBI’s upbeat growth outlook signals confidence in India’s domestic demand, while a lower inflation forecast offers room for continued monetary support. The economy’s resilience is promising, but investors should stay alert to external trade and global market developments.
Remember, this is a perspective, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.