(MENAFN- IANS) Mumbai, Oct 1 (IANS) The RBI has raised its projection of India's GDP growth rate to 6.8 per cent for 2025-26 from 6.5 per cent earlier, as the implementation of several growth-inducing structural reforms, including streamlining of GST, is expected to offset some of the adverse effects of the external headwinds, Reserve Bank Governor Sanjay Malhotra said on Wednesday.

He pointed out that India's GDP recorded a robust growth of 7.8 per cent in Q1:2025-26, driven by strong private consumption and fixed investment. On the supply side, growth in gross value added (GVA) at 7.6 per cent was led by a revival in manufacturing and steady expansion in services. Available high-frequency indicators suggest that economic activity continues to remain resilient. Rural demand remains strong, riding on a good monsoon and robust agriculture activity, while urban demand is showing a gradual revival, the RBI Governor added.

“Taking all these factors into account, real GDP growth for 2025-26 is now projected at 6.8 per cent, with Q2 at 7.0 per cent, Q3 at 6.4 per cent, and Q4 at 6.2 per cent,” Malhotra explained.

He also said that the global economy has been more resilient than anticipated in 2025, with robust growth in the US and China.

The outlook, however, remains clouded amidst elevated policy uncertainty. Inflation has remained above their respective targets in some advanced economies, posing fresh challenges for central banks as they navigate the shifting growth-inflation dynamics. Financial markets have been volatile. The US dollar strengthened after the upward revision of US growth numbers for the second quarter, and treasury yields hardened recently, tracking changes in policy rate expectations. Equities have remained buoyant across several advanced and emerging market economies.

The RBI Governor further stated that revenue expenditure of the Union and state governments registered robust growth during the fiscal year so far (April-July). Investment activity, as suggested by healthy growth in construction indicators, i.e., cement production and steel consumption in July-August, is holding up well even though production and import of capital goods witnessed some moderation. Recovery in the manufacturing sector continues while services activity is sustaining its momentum.

Looking ahead, an above normal monsoon, good progress of kharif sowing and adequate reservoir levels have further brightened prospects of agriculture and rural demand. Buoyancy in the services sector, coupled with steady employment conditions, is supportive of demand, which is expected to get a further boost from the rationalisation of goods and services tax (GST) rates. Rising capacity utilisation, conducive financial conditions, and improving domestic demand should continue to facilitate fixed investment, he observed.

However, ongoing tariff and trade policy uncertainties will impact external demand for goods and services. Prolonged geopolitical tensions and volatility in international financial markets caused by risk-off sentiments of investors also pose downside risks to the growth outlook, the RBI Governor added.

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