MUMBAI, May 29: The Reserve Bank of India (RBI) on Friday said the Indian economy remains on a strong growth path for the current financial year despite external pressures arising from geopolitical tensions, volatile energy prices and disruptions in global supply chains.
In its Annual Report for 2025-26, the central bank said India’s robust macroeconomic fundamentals, healthy corporate and banking sector balance sheets and continued public capital expenditure are expected to sustain economic momentum during 2026-27.
The RBI noted that geopolitical tensions, particularly the ongoing conflict in West Asia, have emerged as a major challenge for the global economy this year. According to the report, the crisis has already affected global growth and inflation forecasts due to uncertainty in energy markets and trade flows.
Despite the challenging international environment, the report maintained a positive outlook for India’s economy, stating that domestic demand, policy support and infrastructure spending continue to provide strong growth support.
The central bank highlighted that India remained the world’s fastest-growing major economy during 2025-26, recording an expansion of 7.6 per cent compared to 7.1 per cent in the previous year. Strong domestic consumption, sustained investments and proactive policy measures were identified as key contributors to the growth performance.
The RBI also said implementation of trade agreements with key international partners is likely to provide additional momentum to economic activity in the coming years.
On the agriculture sector, the report cautioned that the outlook for 2026-27 would depend significantly on the progress and distribution of the southwest monsoon. It warned that possible El Nino conditions could negatively impact agricultural production, although favourable Indian Ocean Dipole (IOD) conditions later in the season may partly reduce the risk.
The report further observed that geopolitical tensions may exert pressure on the availability and prices of important agricultural inputs such as fertilisers. However, it said government efforts to maintain adequate supplies through diversified sourcing and buffer management are expected to help manage these concerns.
Regarding inflation, the RBI projected that price levels are likely to remain aligned with the official target due to sufficient foodgrain stocks, adequate water reservoir levels and stable agricultural prospects despite weather uncertainties.
The central government, in consultation with the RBI, has retained the inflation target at 4 per cent with a tolerance band of plus or minus 2 per cent for the period from April 2026 to March 2031.
The report also highlighted the RBI’s plans to expand the Central Bank Digital Currency (CBDC) pilot programme. The digital currency initiative will be extended to additional use cases including Direct Benefit Transfer (DBT) schemes and domestic retail transactions, while further pilot projects involving tokenisation of financial assets are also being explored.