RBI Raises FY27 Growth Forecast To 6.7%, Cites Strong Domestic Demand

New Delhi, Aug 26 (KNN) The Indian economy remains resilient despite geopolitical tensions, renewed US tariffs and global trade uncertainties, with strong domestic demand and recovering manufacturing and services supporting growth, according to the RBI’s latest State of the Economy article.

Improving monsoon conditions and recovering capital inflows are also supporting activity, although global risks continue to weigh on trade and the growth-inflation outlook, reported the Indian Express.

The MPC kept the repo rate unchanged at 5.25 per cent on August 5, while raising its FY27 growth forecast to 6.7 per cent from 6.6 per cent and lowering its inflation projection to 5 per cent from 5.1 per cent.

Domestic Demand Supports Growth

The RBI said FY27’s first-quarter economic momentum continued into July, with high-frequency indicators showing sustained manufacturing and services activity.

Strong domestic demand was reflected in vehicle and tractor sales, while petroleum consumption returned to growth. Industrial production also posted its strongest growth in nearly two years in June, led by broad-based manufacturing.

Services remained resilient, while merchandise exports and imports grew strongly in July. However, the trade deficit widened sequentially and year-on-year, partly due to a higher electronics trade deficit.

Monsoon Recovery Eases Agriculture Risks

The RBI said an improved southwest monsoon in July helped kharif sowing approach normal levels, easing some risks to agriculture.

The government also announced an Open Market Sale Scheme for FY27, backed by high foodgrain stocks, to boost market supplies. Headline inflation rose slightly due to food prices, while stable core inflation indicated limited cost pass-through.

Capital Inflows Improve Financial Conditions

Financial conditions remained supportive, with strong credit growth, ample liquidity, softer bond yields and recovering capital inflows strengthening the external sector.

Globally, geopolitical tensions in West Asia and fresh US tariffs continue to pose risks, although uncertainty eased for the fourth consecutive month. Lower crude prices and improved economic fundamentals also reduced financial-market volatility.

The RBI said India’s strong macroeconomic fundamentals and resilient domestic demand continue to cushion the economy against global headwinds.

(KNN Bureau)