6.7% Growth Projected for FY27
Mumbai, August 25: India’s economic outlook is becoming increasingly uncertain as growth moderates, inflationary pressures return and the merchandise import bill continues to outpace exports, prompting the Reserve Bank of India (RBI) to describe the outlook as “hazy” amid risks from the monsoon, El Niño, geopolitics and global trade policy.
The RBI has projected real GDP growth at 6.7% for 2026-27. Growth is projected at 7% in Q1, but is expected to moderate to 6.4% in Q2, before recovering to 6.5% and 6.8% in the following quarters.
Inflation Set to Rise to 5.9%
While growth is moderating, inflation is moving in the opposite direction.
The RBI expects CPI inflation to rise to 5.9% in Q3 2026-27, with the full-year projection at 5%.
The projected increase is primarily attributed to food and fuel pressures, rather than a broad-based escalation in underlying inflation. Core inflation has remained relatively moderate.
Imports Outpace Exports
The external sector presents another pressure point.
India’s merchandise exports rose 19.6% year-on-year to US$44.2 billion in July, but imports increased 17.5% to US$76.2 billion, leaving a merchandise trade deficit of US$32 billion.
The July deficit was wider than both the US$27.9 billion recorded a year earlier and the US$30.4 billion recorded in June 2026.
The imbalance is even more pronounced over the first quarter of 2026-27. Merchandise exports grew 15.9%, while imports expanded faster at 19.9%.
The merchandise trade deficit consequently widened to US$86.6 billion in Q1 2026-27, from US$68.7 billion in the corresponding period a year earlier, highlighting the growing gap between export and import growth.
Electronics Emerging as a Major Pressure Point
Electronic goods are contributing significantly to the widening trade gap.
The electronics trade deficit increased to US$8.4 billion in July, from US$6.1 billion a year earlier. Electronic-goods imports surged 46% year-on-year.
Petroleum and fertiliser imports also recorded strong growth, adding to the pressure on the import bill.
Oil and Monsoon Add to Inflation Risks
The inflation outlook is further complicated by energy-market uncertainty.
Crude prices rebounded sharply after the escalation of the West Asia conflict, creating simultaneous risks to inflation and the import bill.
The monsoon provides another source of uncertainty. July rainfall improved the situation and brought kharif sowing closer to the previous year’s level, but the RBI continues to identify El Niño and uneven rainfall as significant risks to agricultural production and food prices.
RBI Holds Rates as Outlook Remains Uncertain
Against this backdrop, the Monetary Policy Committee unanimously retained the repo rate at 5.25% and continued with a neutral stance.
The RBI has opted to wait for greater clarity on the inflation trajectory and the balance between growth and price pressures rather than respond immediately with another rate cut.
Domestic Economy Still Shows Resilience
The picture is not one of an economy losing momentum across the board.
Domestic demand remains strong, while manufacturing and services continue to expand. Bank credit is also accelerating, with non-food bank credit growing 17.4% year-on-year by July 15, compared with 9.7% a year earlier.
India’s services exports continue to provide an important cushion against the merchandise trade deficit.
The “Hazy” Outlook
The RBI’s assessment therefore presents a more complicated picture than the headline growth numbers suggest.
Growth remains resilient, but its pace is moderating. Inflation is projected to rise, while imports are widening the merchandise trade deficit. At the same time, geopolitical tensions, crude prices, monsoon uncertainty and global trade policies are adding layers of risk.
Against this combination of competing forces, the RBI’s description of the outlook as “hazy” is particularly significant.
The immediate challenge for India is no longer merely to sustain growth, but to sustain it while containing inflation and managing mounting external pressures.
