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Informist, Wednesday, Apr. 9, 2025

 

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--Cuts FY26 GDP growth forecast to 6.5% from 6.7%
--Cuts Apr-Jun GDP growth forecast to 6.5% from 6.7%
--Cuts Jul-Sept GDP growth forecast to 6.7% from 7.0?rlier
--Hikes Oct-Dec GDP growth forecast to 6.6% from 6.5?rlier
--Cuts Jan-Mar 2026 GDP growth forecast to 6.3% from 6.5?rlier
--MPC continues to support growth
--Risks to growth forecasts are evenly balanced
--Uncertainties around growth projections remain high
--Growth is recovering, lower than what we aspire for
--Quantification of adverse impact on growth difficult
--FY27 GDP growth seen at 6.7% as per structural model estimates
--FY27 quarterly GDP growth rates seen in 6.4-6.8% range as per model
 

 

NEW DELHI - The Reserve Bank of India on Wednesday cut its GDP growth projection for 2025-26 (Apr-Mar) to 6.5% from 6.7%, amid escalating global trade tension as reciprocal tariffs imposed by the US come into effect. The central bank also cut its growth estimates for three of the four quarters of the current financial year, with the Apr-Jun GDP estimate revised to 6.5% from 6.7%, and that for Jul-Sept lowered to 6.7% from 7.0%.

 

The RBI raised its growth projection for Oct-Dec to 6.6% from 6.5%, and cut the growth view for Jan-Mar to 6.3% from 6.5%. The RBI's GDP growth projection for FY26 is within the 6.3-6.8% range projected by the finance ministry in the Economic Survey for FY25.

 

The hit to global growth from trade frictions will impede domestic growth and higher tariffs will have a negative impact on net exports, RBI Governor Sanjay Malhotra said in his policy statement. "There are, however, several known unknowns - the impact of relative tariffs, the elasticities of our export and import demand; and the policy measures adopted by the government including the proposed foreign trade agreement with the US, to name a few," Mahotra said. "These make the quantification of the adverse impact difficult."

 

Although India's GDP growth is recovering after an underwhelming performance in the first half of FY25, it is still lower than what the RBI aspired for, Malhotra said. The GDP growth had slowed down to 6.0% in Apr-Sept 2024, from 8.2% a year ago. India's GDP is expected to have grown 6.5% in FY25, according to the second advance estimates given by the statistics ministry. 

 

Going ahead, India's merchandise exports would be weighed by the uncertainties due to disruption in global trade, Malhotra mentioned. As Washington's reciprocal traiffs come into effect, Indian goods are set to attract 26% extra duty in the US, which is also the largest export market for India. Besides, retaliatory measures against the US by China and the European Union set the stage for a global trade war-like situation, adding extra challenges for the economy. 

 

Domestically, the growth metrics are fairly placed, with bright farm prospects, revival in manufacturing activity, and resilience in services sector, Malhotra said. "On the demand side, bright prospects of the agriculture sector bode well for rural demand which continues to be healthy, while urban consumption is gradually picking up with an uptick in discretionary spending. Investment activity has gained traction and it is expected to improve further," Malhotra added. 

 

"While the risks are evenly balanced around the baseline projections, uncertainties remain high in the wake of the recent spike in global volatility," Malhotra said.

 

In its Monetary Policy Report, the RBI has pegged GDP growth for FY27 at 6.7%. Assuming a normal monsoon and no major exogenous or policy shocks in the next fiscal, RBI's structural model estimates quarterly growth in the range of 6.4-6.8%, with 6.5% in Apr-Jun, 6.4% in Jul-Sept, 6.8% in Oct-Dec, and 6.8% in Jan-Mar.

 

The RBI's Monetary Policy Committee, which met Monday to Wednesday, unanimously decided to cut the policy repo rate by 25 basis points to 6.0%. The panel also voted to change the policy stance to 'accommodative' from the 'neutral' stance adopted in October. The moderate growth outlook in the current challenging geoeconomic conditions--of high uncertainties and spurt in global volatility--demands that the rate-setting panel of the RBI continues to support growth, the central bank said in its policy statement.  End 

 

Reported by Krity Ambey

Edited by Avishek Dutta and Vandana Hingorani

 

 

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