India’s economy is expected to grow by 6.5% in FY26, maintaining the pace of expansion seen in the previous fiscal, according to the Reserve Bank of India. In its Monetary

Statement, the central bank highlighted resilient domestic demand, healthy agricultural output, and a pickup in investment activity as key drivers supporting this growth.

The first quarter of FY26 is projected to grow at 6.5%, with a slight uptick to 6.7% in Q2, before moderating to 6.6% and 6.3% in Q3 and Q4 respectively. The risks to the growth outlook are considered evenly balanced.

"During 2025-26 so far, domestic economic activity has exhibited resilience. Agriculture sector remains strong. With a very good harvest in both the kharif as well as rabi cropping seasons, the supply of major food crops is comfortable. The reservoir levels remain healthy.

The highest procurement of wheat in the last four years provides a comforting stock position. Industrial activity is gaining gradually, even though the pace of recovery is uneven," RBI Governor Sanjay Malhotra said in the Monetary Policy Statement.

On the demand side, private consumption, the mainstay of aggregate demand, remains healthy, with a gradual rise in discretionary spending. Rural demand remains steady, while urban demand is improving. Investment activity is reviving as reflected by high-frequency indicators, the statement said.

Growth triggersMerchandise exports recorded a strong growth in April 2025 after a lacklustre performance in the recent past. Non-oil, non-gold imports posted a double-digit growth, reflecting buoyant domestic demand conditions. Services exports continue on a strong growth trajectory.

Going forward, the outlook for agriculture sector and rural demand is expected to receive further impetus by the expected above normal southwest monsoon rainfall.

On the other hand, sustained buoyancy in services activity should nurture revival in urban consumption. The healthy balance sheets of banks and corporates; government’s continued thrust on capex; elevated capacity utilisation; improving business optimism and easing of financial conditions should help further revive investment activity, it said. Trade policy uncertainty however continues to weigh on merchandise exports prospects, while conclusion of free trade agreement (FTA) with the United Kingdom and progress with other countries should provide a fillip to trade in goods and services. Spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth.