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Informist, Wednesday, Oct. 7, 2026

 

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--RBI Malhotra: Focusing on headline inflation alone may not be appropriate 
--RBI Malhotra: Will focus on bringing headline inflation to target of 4% 
--RBI Malhotra: Headline CPI up on base effect, supply-side shocks 
--RBI Gupta: Growth rate has been resilient despite multiple global shocks 
--RBI Malhotra: Don't have a number on India's potential growth rate 
--RBI Gupta: Indicators show underlying growth potential of econ up 
--RBI Malhotra: Don't see major negative impact of AI valuation correction 
--RBI Malhotra: Premature to gauge impact of US' tariffs on trade 
--RBI Malhotra: Seeing some slowing in agri output, rural demand
--RBI Malhotra: There has been a partial pass-through of cost increase

 

NEW DELHI – Indicators show that the underlying strength and potential of the Indian economy has increased amid an economic backdrop of geopolitical issues and exogenous risks, Reserve Bank of India Deputy Governor Poonam Gupta said Wednesday. In the post-COVID years, India's growth rate has been highly resilient to multiple global shocks, and it has coexisted with low and stable inflation, which is indicative of the high potential growth rate that India has, Gupta said at a press conference post the Monetary Policy Committee's meeting. 

 

"Even in Q1 (Apr-Jun), growth rate of 7.8% coexisted with very low inflation, and that would have been the case perhaps this year (2026-27 (Apr-Mar)) as well, if two global shocks had not occurred, both climate and oil crisis," she said in response to a question by Informist. "And there are a number of indicators, though there are no specific estimates we have, the indicators we show that the underlying strength and potential of the economy has increased," Gupta said. 

 

RBI Governor Sanjay Malhotra, who was also present at the press conference, said the central bank does not have the potential growth rate number worked out. Earlier in the day, the RBI raised its outlook for India's GDP growth in FY27 by 40 basis points to 7.1% as domestic economic activity remains resilient amid global headwinds.

 

Although the central bank raised the forecast for growth this year, the outlook remains clouded by global headwinds such as protracted geopolitical tensions, higher international commodity prices, additional frictions in global trade, and tightening of global financial conditions. The West Asia war, tariff-related uncertainties, elevated bond yields and risks of an unwieldy correction in the valuation of artificial intelligence companies' stocks are keeping global economic sentiment edgy, with risk-off sentiment in emerging market economies like India, the RBI said.

 

Elaborating on this, the governor said that "stretched valuations (of AI stocks) and their corrections" could be a concern for various economies, but for India, the impact could be limited. "Since we do not have too much of AI over here, we do not see any major negative impact," he said. "If at all there can be, it may be positive. If at all there may be."

 

Regarding tariffs, a risk that felt more pronounced earlier in the year, Malhotra said that it was still "premature" to answer the extent to which US tariffs would impact India as the bilateral trade agreement was still not in place. The two countries have been engaged to secure the trade agreement which will provide clarity and continuity to the tariff that Indian exports to Washington will attract.

 

India and the US had announced an interim trade deal in February, under which Washington scrapped the penal tariff of 25% on Indian goods and cut the reciprocal tariff to 18% from 25%. However, later that month, the US Supreme Court quashed the reciprocal tariffs imposed by US President Donald Trump. Currently, the Trump administration has imposed a blanket 10% tariff on all goods entering the US. On the other hand, the recently passed Lindsey Graham Bill allows the US Congress to impose sanctions of up to 100% on Indian goods exported to the US. 

 

Domestically, although growth has been robust and broad-based, there is some slowdown seen in agricultural output and rural demand, Malhotra said. This is likely due to adverse weather conditions. The slowdown, however, has been accounted for in the 7.1% projection for FY27 GDP growth detailed earlier in the day, he said.

 

According to the governor, external factors do have a bearing on the Monetary Policy Committee's decision, which decided to raise the repo rate by 25 bps to 5.50% Wednesday, the first hike in over three years. Keeping in mind the growth-inflation dynamics, the RBI also changed its stance to calibrated tightening, with a rate hike being "off the table" for the near term. "Policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook," the panel said. 

 

The central bank has opted to hike interest rates with inflation re-emerging on the back of weather-related and war-led uncertainties. The RBI also raised the headline inflation outlook for FY27 by 20 bps to 5.2%, saying it was "clear" that inflation and its outlook were "not benign". 

 

The governor said that while the aim is to align inflation to the 4% target, focusing only on headline inflation may not be appropriate; it is important to see the underlying inflation conditions and the path it is on before taking a decision.

 

"Because especially in these times, a lot of the increase in headline inflation is because of a base effect and other supply-side factors," he said. "So headline (inflation) alone may not be the right measure, and so we have to look at other measures which we have given, including core, diffusion indices etc. to be able to get a view, so as to be able to infer as to what the underlying inflation is and where it is moving."

 

The RBI has now started giving an estimate for core inflation – which does not take into account food and oil prices that tend to be volatile. The RBI Wednesday projected core inflation in FY27 at 4.4%, 10 bps higher than earlier projected. Malhotra also said that the Monetary Policy Committee would have to remain data-dependent before taking a policy decision based on inflation, as only partial pass-through of price pressures has happened so far. 

 

"Some of it is happening and shall happen. Now, to what extent it will happen will depend on the persistence of the supply-side pressures," he said. "To what extent it further passes on is something that we need to see," the governor said.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta

 

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