India GDP Growth 2025-26: RBI Sees Demand-led 7.4%

Why the RBI’s latest assessment matters

India’s economy is holding up despite a more uncertain global environment, with domestic demand continuing to act as the main growth anchor. The Reserve Bank of India (RBI), in its monthly State of the Economy commentary and related bulletin observations, pointed to improving momentum across consumption, manufacturing, and services. External conditions, including geopolitical frictions and trade disputes, have weakened export demand in parts of the world. Even so, the RBI’s framing is that internal drivers are cushioning the economy from global volatility through early 2026. That mix of resilience and external risk is important for investors tracking growth-sensitive sectors and policy direction.

GDP growth signals from advance estimates

The second advance estimates referenced in the material indicate GDP growth for 2025-26 remains robust, supported by strong domestic demand. Separately, the latest advance estimates cited in the RBI’s discussion project India’s GDP growth at around 7.4% for the current fiscal year, compared with 6.5% last year. The narrative emphasises that India remains among the fastest-growing major economies, even as export markets look uneven. Policymakers are highlighting consumption and investment at home as the key supports. The tone is constructive but not complacent, with repeated references to global headwinds.

High-frequency indicators point to February momentum

The RBI noted that high-frequency indicators signal economic activity gaining momentum in February. Indicators mentioned include GST receipts, e-way bills, and retail sales, which suggest broad-based engagement across sectors. The commentary links the momentum to both urban and rural consumption. A rebound in manufacturing output and continued buoyancy in services were also cited as lifting overall activity. The material also references record agricultural output and strong automobile sales as supporting signals. Together, these inputs point to an economy that is still expanding on the back of domestic spending.

Demand picture: rural support and mixed urban trends

Rural demand is described as a bright spot, with agriculture-related income and consumer confidence in smaller towns and villages improving. Urban demand is portrayed as recovering gradually, while another segment notes urban demand remained mixed. Across both, domestic consumption remains the central theme. One data point from the UBS-referenced segment says private consumption rose 7.2% year-on-year, and is now at its highest share of GDP since FY04. That same segment attributes support to rural demand and urban income-tax relief. At the household level, the UBS segment also notes household savings declined for the third consecutive year to 18.1% of GDP, while financial liabilities rose to 6.2%, indicating rising leverage.

Manufacturing, services, and construction remain key engines

Lead indicators of manufacturing and services were described as continuing to show robust expansion. Services such as information technology, finance, and hospitality were cited as providing a broad foundation under the economy. Construction also featured prominently in the UBS-referenced update, with construction activity growing by 10.8% in Q4. Manufacturing was said to have shown improvement, although private investment was described as cautious in the face of global uncertainty. This combination points to growth being led by domestic activity, with services and construction adding stability when external demand is softer.

Inflation and policy stance: room, but global uncertainties persist

Inflation in the narrative is characterised as contained, giving the RBI some policy space. A specific data point states headline CPI inflation fell to 1.5% in September, the lowest reading since June 2017. Alongside inflation, the material flags uncertainty around global financial conditions, currency movements, and trade policy. It also notes the RBI’s focus is increasingly on managing the pace of change in markets, rather than defending fixed levels for variables such as the currency. The March 2025 bulletin excerpt further notes policy measures that helped stabilise market liquidity, while calling out foreign portfolio outflows and currency depreciation as key risks.

External sector: trade deficit widens, services exports cushion

External conditions are presented as less supportive than before, with export markets sluggish in some regions due to geopolitical and trade tensions. A hard number underscores the pressure: the merchandise trade deficit widened in September to $12.1 billion, a 13-month high, from $14.7 billion in September 2024, driven by a rising non-oil deficit. At the same time, the composition of exports is portrayed as a resilience factor. Services exports account for 47% of India’s exports, according to the Indian government, and are described as less vulnerable to global trade fluctuations than goods exports. The WTO projection cited says global goods trade will contract 0.2% while services trade will grow 4.0% in calendar year 2025, suggesting a relatively better backdrop for services-heavy exporters.

Financial system buffers and credit support

Banking sector health is described as supportive, with strong capital and liquidity buffers helping economic activity and credit flows. Credit growth from both banks and non-bank financial institutions is mentioned as helping sustain investment and consumer financing. The bulletin excerpt also points to macro fundamentals such as adequate foreign exchange reserves and a credible monetary and fiscal framework. In the RBI-linked quote, the monthly review prepared under the guidance of deputy governor Poonam Gupta said the economy “has so far exhibited resilience, driven by a focus on strong and durable macroeconomic fundamentals - including low inflation, robust balance sheets of banks and corporates, adequate foreign exchange reserves and a credible monetary and fiscal framework.” These elements collectively frame why domestic demand has remained steady even as global conditions fluctuate.

What global agencies are saying about India’s growth path

The material points to forecasts from the RBI and international bodies like the IMF anticipating continued growth through the first half of the next fiscal year, though at a slightly moderating pace versus the current fiscal. It also states the IMF revised India’s GDP growth projection for 2025 upwards by 20 bps to 6.6%, while revising the projection for 2026 downwards to reflect the medium-term impact of steep US import tariffs. A World Bank view is also included, quoting Auguste Tano Kouame, the World Bank’s Country Director in India: “The Indian economy continues to show strong resilience to external shocks. Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing.”

Key numbers at a glance

Market impact and why investors watch these signals

The central market takeaway is that domestic demand remains the primary support for growth, which has implications for consumer-facing sectors and credit-linked businesses. Stronger high-frequency indicators, alongside steady services activity, can shape expectations around earnings resilience in domestically oriented companies. At the same time, the widening merchandise trade deficit and the mention of portfolio outflows and currency depreciation highlight why markets still monitor external vulnerability. The services export cushion matters because the WTO outlook is relatively more supportive for services trade than goods trade in 2025. Inflation cooling to 1.5% in September, as cited, can also influence rate expectations, although the RBI’s commentary stresses that global uncertainty remains a constraint.

Conclusion: resilience led by domestic demand, with risks flagged

The RBI’s commentary and the additional agency inputs present early 2026 as a period where India’s growth is being carried by consumption, services, and improving manufacturing momentum. The headline GDP growth estimates cited, along with February’s high-frequency momentum, reinforce that domestic demand is still doing the heavy lifting. But the narrative is not one-sided: the larger trade deficit, global tariff risks, and financial market volatility remain live concerns. The next set of official data releases and periodic RBI assessments will remain key checkpoints for whether domestic demand continues to offset an uneven global backdrop.