Highlights
- RBI says West Asia conflict could pressure India’s growth and inflation
- GDP growth for FY27 projected at 6.9% with downside risks
- CPI inflation estimated at 4.6%, risks remain on the upside
- Rising fuel prices and supply chain disruptions cited as major concerns
- India’s economy remains resilient due to strong domestic demand and investments
- RBI says geopolitical tensions may increase volatility in global markets
- Government capex and trade agreements expected to support growth momentum
- Agriculture outlook depends on monsoon and possible El Niño conditions
Mumbai, May 29, 2026: The Reserve Bank of India (RBI) has warned that the ongoing conflict in West Asia could create short-term challenges for India’s economic growth and inflation, mainly through rising energy prices, supply chain disruptions, and volatility in global financial markets.
In its Annual Report for 2025-26 released on Friday, the central bank said India’s growth outlook remains positive despite global uncertainties, supported by strong domestic demand, sustained investments, healthy corporate and banking sector balance sheets, and continued government capital expenditure.
The RBI projected India’s real GDP growth for FY2026-27 at 6.9 per cent, though it cautioned that risks remain tilted to the downside if geopolitical tensions continue to intensify.
The central bank also projected Consumer Price Index (CPI) inflation at 4.6 per cent for FY27, with risks tilted upward due to rising global fuel and commodity prices, exchange rate volatility, and possible spillover effects on input and wage costs.
According to the report, the conflict in West Asia, which escalated toward the end of February 2026, has already started affecting global growth and inflation forecasts. The RBI noted that surging energy prices and disruptions in key shipping routes could further increase supply-side pressures worldwide.
The report highlighted that geopolitical risks have once again emerged as a major drag on global growth in 2026. It added that elevated valuations in global technology sectors may also face corrections amid increased uncertainty and protectionist trends.
Despite these risks, the RBI said India continued to demonstrate economic resilience during FY2025-26, supported by robust private consumption, stable macroeconomic fundamentals, and proactive policy measures.
The report stated that healthy foodgrain stocks, adequate reservoir levels, and stable agricultural conditions are expected to help contain inflation. However, it warned that possible El Niño conditions and above-normal summer temperatures could pose risks to agricultural production.
The RBI further noted that government initiatives announced in the Union Budget 2026-27, including support for high-value crops, fisheries, aquaculture, and technology adoption under Bharat-VISTAAR, are expected to strengthen the agriculture and allied sectors.
The central bank also said ongoing government efforts to ensure adequate fertiliser availability through diversified sourcing and buffer management would help mitigate risks arising from geopolitical tensions.
The RBI Monetary Policy Committee (MPC) is scheduled to announce its next interest rate decision on June 5, 2026.
