India GDP Expands 7.8% in Q4: RBI Cuts FY27 Growth Forecast

India's economy expanded by an impressive 7.8% during the January-to-March quarter of the financial year 2025-26, significantly outperforming initial street expectations and reinforcing its status as the world's fastest-growing major economy. Citing this robust momentum, Prime Minister Narendra Modi officially raised the full-year GDP growth estimate for FY26 to 7.7%. This expansion was heavily anchored by resilient manufacturing activity, steady domestic service sector performance, and aggressive capital expenditure by the central government.

Despite the stellar historic print, the Reserve Bank of India has cautiously revised its GDP growth forecast for the fiscal year 2026-27 (FY27) down to 6.6%. Alongside the growth downgrade, the central bank expects retail inflation to escalate to 5.1%, driven by rising commodity costs. RBI Governor Shaktikanta Das highlighted that the ongoing conflict in the Middle East, which began in late February, represents a severe threat to global supply chains, driving up shipping freights and domestic fuel costs.

This policy divergence between past economic momentum and future growth headwinds presents a complex challenge for Indian monetary planners. Financial analysts believe the elevated inflation projection of 5.1% will compel the RBI to maintain its high-interest rate stance, postponing any anticipated repo rate cuts to late FY27. In the near term, corporate India must navigate these high interest rates and input cost pressures, while the government attempts to shield consumers through targeted fiscal interventions and strategic trade partnerships.