Mumbai, The Indian economy remains strong despite challenging global conditions, and robust macroeconomic fundamentals will support growth in the current fiscal year 2026-27. The Reserve Bank of India (RBI) stated this in its annual report released on Friday. According to the report, despite high energy prices, supply chain disruptions, and challenges from global markets, strong balance sheets of companies and the banking sector, along with the government’s emphasis on capital expenditure, are favorable for India’s strong growth momentum.
It stated that geopolitical risks emerged as a major obstacle to global growth in 2026. The impact of the conflict that began in West Asia at the end of February 2026 is visible in global growth and inflation estimates. The report said, “Amid a moderate global growth scenario, the outlook for the Indian economy in 2026-27 remains positive. However, a prolonged conflict in West Asia could pose negative risks.”
It added that the implementation of various trade agreements with key trading partners will further accelerate India’s growth. India remained the fastest-growing major economy in fiscal year 2025-26, growing at a rate of 7.6 percent, compared to a growth rate of 7.1 percent in 2024-25. This was supported by strong domestic demand, sustained investment, proactive policy initiatives, and solid macroeconomic fundamentals.
Indian Ocean Dipole positive condition could partially mitigate its adverse effects
The report stated that the outlook for the agricultural sector in 2026-27 will depend on the progress and distribution of the southwest monsoon. It said, “The possibility of El Niño poses a negative risk to agricultural production. However, a positive Indian Ocean Dipole condition, which increases rainfall in the latter part of the monsoon, could partially mitigate its adverse effects.”
The report noted that current geopolitical tensions could pressure the availability and prices of key raw materials, especially fertilizers. However, government efforts to ensure supply from diverse sources and buffer stock management will help alleviate these concerns. Furthermore, adequate food grain stocks, sufficient water levels in reservoirs, and stable agricultural prospects are likely to keep inflation within the target range in 2026-27, even with El Niño conditions and above-normal heat.
The central government, in consultation with the RBI, has retained the inflation target of four percent with a tolerance band of two percent for the period from April 1, 2026, to March 31, 2031. The report also stated that the RBI plans to expand the pilot use of the Central Bank Digital Currency (CBDC) to extend it to DBT schemes and new uses in the domestic retail sector. Additionally, pilot projects for the ‘tokenization’ of financial assets and including more participants are being considered.
