RBI Bulletin: India to the Fastest-Growing Economy in 2025-2026

India’s economy is expected to remain the fastest-growing major economy in 2025-26, with GDP growth projections of 6.5% (IMF) and 6.7% (World Bank), according to the latest RBI bulletin. Despite global uncertainties, indicators suggest that economic activity picked up in the second half of 2024-25, and this momentum is likely to continue, as per the report.

Inflation Eases, Demand Recovers

Retail inflation dropped to 4.3% in January, marking a five-month low. The decline was largely due to lower vegetable prices as fresh supplies hit the market. Industrial activity improved as well, with the Purchasing Managers’ Index (PMI) for January showcasing stable growth in manufacturing and services.

Rural demand has remained strong, supported by higher farm incomes. In Q3 2024-25, FMCG sales in rural areas grew by 9.9%, up from 5.7% in Q2. Urban demand also showed an uptick, with sales rising by 5%, compared to 2.6% in the previous quarter.

Capital Expenditure and Private Investment

The Union Budget 2025-26 continues to focus on capital expenditure while balancing fiscal consolidation. The capital expenditure-to-GDP ratio is expected to rise to 4.3% in 2025-26, up from 4.1% in 2024-25 (revised estimates).

Private investment intentions remained stable. Banks and financial institutions sanctioned nearly ₹1 lakh crore worth of projects in Q3, and there was an increase in External Commercial Borrowings (ECBs) and Initial Public Offerings (IPOs) for capital expenditure.

Market and Currency Pressure

Foreign Portfolio Investors (FPIs) pulled out funds, leading to declines in equity markets. The Indian rupee weakened along with other emerging market currencies, largely due to the strength of the US dollar.

The RBI bulletin notes that despite these external pressures, India’s macro fundamentals remain strong, supporting its growth outlook for 2025-26.

Global Economy Faces Mixed Signals

The world economy is growing steadily but unevenly, with politics, tech shifts, and trade tensions shaping the outlook. Markets stay cautious as inflation cools slowly while emerging economies like India face FPI outflows and currency dips due to a strong dollar.

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