RBI Sees India Growing at 6.9% in FY27 Despite West Asia Risks

India's economy is expected to remain resilient in 2026-27 despite rising geopolitical tensions and inflationary risks emanating from the West Asia conflict, the Reserve Bank of India (RBI) said in its Annual Report 2025-26.

The central bank projected India's real GDP growth at 6.9 per cent for 2026-27, while warning that inflationary pressures could intensify due to elevated crude oil prices, supply disruptions and global uncertainty.

"Against the backdrop of a moderate global growth, the outlook for the Indian economy in 2026-27 remains positive, supported by strong macroeconomic fundamentals, although a prolonged West Asia conflict may pose downside risk," the RBI said in the report.

The RBI noted that geopolitical risks have "re-emerged as the dominant drag on global growth in 2026," with the conflict in West Asia leading to upward revisions in global inflation forecasts and downside risks to trade and financial markets.

On inflation, the central bank projected Consumer Price Index (CPI) inflation at 4.6 per cent in 2026-27, compared to 2.1 per cent in 2025-26.

How does the RBI project inflation for 2026-27 amid geopolitical tensions and global risks?

"Inflation in 2026-27 is likely to remain aligned with the target... However, the evolving upside risks to inflation may emanate from multiple other factors such as a spike in global fuel and commodity prices amid geopolitical tensions," the report said.

The RBI also warned about possible spillovers to input and wage costs along with exchange-rate volatility.

Despite the uncertain global environment, the report highlighted India's strong domestic demand conditions, healthy banking sector and sustained government capital expenditure as key growth drivers.

"The healthy balance sheets of the corporate and banking sectors along with the government's continued thrust on capital expenditure bode well for India's strong growth trajectory," it said.

India remained the fastest-growing major economy during 2025-26, with GDP growth estimated at 7.6 per cent against 7.1 per cent in the previous year.

The report said the country's growth was supported by "strong domestic consumption, sustained investment, proactive policy initiatives and sound macroeconomic fundamentals."

On the fiscal front, the RBI underscored the Centre's continued consolidation efforts. The gross fiscal deficit (GFD) for 2025-26 stood at 4.4 per cent of GDP, below the government's medium-term target of 4.5 per cent.

For 2026-27, the Centre has projected a fiscal deficit at 4.3 per cent of GDP.

"GFD is projected at 4.3 per cent of GDP in 2026-27, reflecting the Centre's continued fiscal consolidation efforts in recent years," the report noted.

(With inputs from ANI)