Macros strong, but weak rains, war can hit growth: RBI Guv Sanjay Malhotra
The Indian economy expanded 7.7% in the last financial year (FY26), supported by robust macroeconomic fundamentals, according to the Reserve Bank of India Governor.
The RBI has projected GDP growth of 6.6% for the current financial year (FY27), a downward revision from an earlier estimate of 6.9% made in April.
The RBI raised its inflation forecast for FY27 to 5.1% from an earlier projection of 4.6%.
The Governor identified a weak monsoon and the ongoing West Asia conflict as the two biggest risks to growth, citing the agriculture sector's roughly 17% contribution to GDP and its dependence on monsoon performance, along with the impact of the conflict on global energy prices.
The Governor noted that despite dollar strengthening following the West Asia conflict, the rupee's performance remains stable relative to global peers.
Flexible Inflation Targeting (FIT) Framework and the Monetary Policy Committee
India formally adopted Flexible Inflation Targeting in 2016, when the RBI Act, 1934 was amended to insert Section 45ZA-45ZO, giving statutory backing to an inflation-targeting regime. Under this framework, the Central Government, in consultation with the RBI, notifies an inflation target once every five years. The Monetary Policy Committee (MPC), a six-member body under Section 45ZB, is responsible for setting the policy repo rate to achieve this target.
Key Details
- The current inflation target is 4% CPI inflation, with a tolerance band of +/-2% (i.e., 2%–6%), notified for the period since August 2016.
- The MPC comprises the RBI Governor (Chairperson), two RBI officials, and three external members appointed by the Government of India; decisions are taken by majority vote, with the Governor holding a casting vote in case of a tie.
- If the RBI fails to maintain inflation within the tolerance band for three consecutive quarters, it must submit a report to the Government explaining the reasons and the remedial timeline.
The RBI's upward revision of the FY27 inflation forecast to 5.1% (still within the 2–6% tolerance band but well above the 4% target) reflects the FIT framework's core function — the MPC recalibrating its outlook and policy stance as fresh risks (monsoon, geopolitical shocks) emerge.
GDP and GVA Measurement Methodology (MoSPI, Base Year 2011-12)
India's national income estimates are compiled by the Ministry of Statistics and Programme Implementation (MoSPI), currently using 2011-12 as the base year, following the 2015 revision of methodology which shifted from factor cost to market price valuation and adopted the Gross Value Added (GVA) approach recommended by the UN System of National Accounts.
Key Details
- India releases multiple GDP estimates in a fiscal cycle: Advance Estimates, Provisional Estimates, First Revised Estimates, and so on, with figures often revised significantly between releases.
- Agriculture, forestry and fishing contribute roughly 17-18% of India's Gross Value Added, making monsoon performance a recurring risk factor cited by policymakers, as referenced by the RBI Governor.
- A base-year revision (to a more recent year) is periodically undertaken by MoSPI to better reflect the current structure of the economy; this is distinct from, but often discussed alongside, methodology changes.
The 7.7% FY26 growth figure and the 6.6% FY27 projection are both computed under the MoSPI GVA/GDP framework, and the RBI's own growth forecasts are calibrated against this official data series, which is why agricultural risk (via the monsoon) features prominently in the Governor's caution.
- FY26 (last financial year) GDP growth: 7.7%.
- RBI's FY27 GDP growth projection: 6.6% (revised down from 6.9% projected in April 2026).
- RBI's FY27 CPI inflation projection: 5.1% (revised up from 4.6%).
- RBI's statutory inflation target: 4% CPI, with a tolerance band of 2%–6%, under the Flexible Inflation Targeting framework in force since August 2016.
- Agriculture, forestry and fishing account for approximately 17% of India's Gross Value Added.