The Reserve Bank of India raised its real GDP growth projection for 2026-27 to 7.1% from 6.7%, while flagging risks from the prolonged West Asia conflict, elevated commodity prices, supply-chain disruptions and deficient monsoon conditions that could weigh on economic activity.

The upward revision follows stronger-than-expected growth of 7.8% in the April-June quarter, supported by private consumption, fixed investment, a rebound in merchandise exports and sustained services exports. The RBI said domestic economic activity has remained resilient despite persistent global headwinds.

The central bank now expects GDP growth at 7.2% in July-September, up from its August projection of 6.4%. The forecast for October-December was raised to 6.9% from 6.5%, while the January-March estimate was retained at 6.8%. Growth in the first quarter of 2027-28 is projected at 7.1%.

"The risks are evenly balanced," the RBI said in its Monetary Policy Committee resolution, indicating that the improved growth outlook remains subject to uncertainties.

The RBI noted that high-frequency indicators for July-August pointed to sustained domestic momentum, with resilient demand and double-digit growth in merchandise exports. Manufacturing activity remained firm despite cost pressures, while services continued to benefit from buoyant domestic and external demand.

However, the pace of expansion in manufacturing and services purchasing managers' indices moderated from the first quarter. Private consumption remained broadly resilient, supported by discretionary spending, while fixed investment continued to show strength. The central bank also noted weakness in some segments, including non-durable goods and domestic air passenger traffic.

The outlook remains vulnerable to external and weather-related risks. The RBI said the re-escalation of the West Asia conflict and sharp volatility in crude oil prices have kept the global economy uncertain. Tighter global financial conditions, elevated international commodity prices and additional trade frictions could weigh on domestic activity.

Deficient southwest monsoon rainfall and strong El Niño conditions also pose risks to agriculture and rural demand, particularly through their potential impact on the upcoming rabi season. The RBI said healthy foodgrain stocks and proactive government interventions could help mitigate the effects.

At the same time, resilient non-farm activity is expected to support rural consumption. Sustained services activity and broadly stable employment conditions should underpin urban demand, while strong capacity utilisation, credit flows and the government's infrastructure spending are expected to support investment.

The central bank also expects services exports to remain buoyant, with recently operationalised bilateral trade agreements likely to support merchandise exports.

RBI GDP growth projections