Indian economy to sustain its position as fastest growing major economy in 2025-26: RBI annual report

“The Indian economy is poised to sustain its position as the fastest growing major economy during 2025-26, supported by pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions and the government’s continued thrust on capital expenditure,” the annual report said.

For 2025-26, the Reserve Bank of India has projected real gross domestic product (GDP) growth at 6.5 per cent and consumer price index (CPI) inflation at 4 per cent.

The easing of supply chain pressures, softening of global commodity prices and higher agricultural production on the back of a likely above-normal south-west monsoon augur well for the inflation outlook in 2025-26, the report said.

In the financial year 2024-25, headline inflation eased by 73 basis points (bps) to 4.6 per cent in 2024-25.

The report said that with inflation falling below the target in February and March 2025, supported by a sharp fall in food inflation, there is now greater confidence about a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon.

“The benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions,” it said.

Prolonged geopolitical uncertainties, excessive global financial market volatilities, trade fragmentation and restrictive trade policies pose upward risks to the inflation trajectory, it said.

On financial markets, the report said during 2025-26, markets will closely track the implications of tariff policies of the US and reciprocal measures by others, as an uncertain policy environment may instil volatility in global financial markets.

Following a correction in the second half of 2024, Indian equity markets are expected to remain resilient amidst stable macroeconomic conditions and moderation in equity market valuations, although geopolitical uncertainty poses downside risk.

It said that the resource mobilisation through the primary market is expected to regain momentum as secondary market sentiments stabilise.