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Informist, Friday, Feb. 20, 2026

 

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--RBI Report: Low inflation to give positive growth-inflation mix near term 
--Inflation to remain benign, near target 
--Fall in fisc gap, sustained capex to crowd in private invest 
--Near-term econ outlook favorable, high growth momentum seen 
--Recent trade deals to be key in boosting export competitivenes 
--EU FTA, US trade deal to improve market access in coming yrs 
--Global econ outlook, fincl mkt conditions in a state of flux 
--FY27 Budget reaffirmed govt's commitment to fisc consolidation 
--Quarterly results of pvt cos show aggregate sales growth strong
 

 

NEW DELHI – The gradual reduction in the fiscal deficit, combined with a sustained emphasis on capital expenditure, is expected to crowd in private investment and improve productive capacity, the Reserve Bank of India's staff said. The government's continued commitment to fiscal consolidation and debt sustainability signals prudent macroeconomic management, the RBI's staff said in the monthly State of the Economy article released Friday.

 

The support to states for capital investment is also likely to reinforce subnational growth and infrastructure development, the report said. In the Union Budget for 2026-27 (Apr-Mar), Finance Minister Nirmala Sitharaman proposed that the Centre will provide capital expenditure loans to the tune of INR 2 trillion to states and union territories.

 

The RBI paper said that the Budget for FY27 reaffirmed the government's commitment to fiscal consolidation without diluting the focus on long-term growth with stepped-up allocation towards capital expenditure. The Budget has pegged the fiscal deficit target for FY27 at 4.3% of GDP, while the deficit for FY26 was retained at 4.4% of GDP in the revised estimates. The central government's debt is seen at 55.6% of GDP in FY27, down from 56.1% in FY26.

 

The article by the central bank's staff said that "the near-term economic outlook for the economy remains favorable and is well-positioned to sustain its high growth momentum, driven by consumption, investment, and productivity-enhancing reforms." The Economic Survey for FY26 had said that the GDP growth in the December quarter is seen at 7?sed on a nowcast model developed by the economic division in the Department of Economic Affairs.

 

The RBI staff paper also said that inflation is expected to remain benign and near the inflation target, providing a positive growth inflation balance in the near term. Retail prices in India rose on a year-on-year basis in the first month of 2026 with the new series showing CPI inflation at 2.75% in January. The headline inflation rose above the lower end of the RBI's tolerance band of 2-6% for the first time since August.

Global economic outlook and financial market conditions are in a state of flux, the staff said in the article, which is part of the RBI's monthly bulletin. "While the simmering geopolitical tensions, public debt sustainability concerns in advanced economies, stretched valuation of artificial intelligence firms and disruptions of artificial intelligence on software services industry, are posing negative risk to outlook, robust macroeconomic data releases including corporate earnings, on the other hand, have added to the positive sentiments," it said.

 

The report said that domestic economy remained resilient with quarterly results of listed private companies showing strengthening of aggregate sales growth. "Industrial activity remained strong, and services sector sustained its healthy growth," it said.

 

Referring to the completion of the India-EU free trade agreement in January and the interim trade agreement between India and US, the RBI staff paper said these pacts may play a significant role in the coming years by improving market access, enhancing export competitiveness, and integrating Indian firms more deeply into global value chains. India and the US announced a trade deal under which Washington has committed to cut the reciprocal tariff on Indian goods to 18% from 25%. The White House has also scrapped the 25% penal tariff after the deal.  End

 

Reported by Sagar Sen and Pratiksha

Edited by Ashish Shirke

 

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