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The Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) decided to slash key rates by 50 basis points on Friday. The panel, chaired by Governor Sanjay Malhotra, also changed its fiscal policy stance from 'accommodative' to 'neutral'.

Sharing the details, the governor said that the panel opted to maintain its GDP growth projection at 6.5 per cent for the financial year 2025-26. This outlook was attributed to robust performance across agriculture, improving industrial output, and sustained momentum in the services sector.

The estimate aligned with the National Statistical Office’s (NSO) provisional figures for FY25, also at 6.5 per cent.

As per RBI's quarterly breakdown, economic growth is expected to unfold at 6.5 per cent in Q1, 6.7 per cent in Q2, 6.6 per cent in Q3, and 6.3 per cent in Q4. Governor Sanjay Malhotra highlighted the overall resilience of domestic economic activity, attributing the positive outlook to multiple supporting factors across sectors.

Agriculture Output and Consumption Support Growth

Agriculture emerged as a cornerstone of this steady growth trajectory. “The 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,” Malhotra stated.

On the demand front, he noted that private consumption continues to be a key driver of growth. “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,” he said.

Industry and Services Regaining Momentum

Although industrial growth remains uneven, signs of revival are visible. Investment activity is showing signs of a rebound, as evidenced by encouraging high-frequency data, the official pointed out. The services sector continues to be a strong contributor to GDP, with the Purchasing Managers’ Index (PMI) for services standing at 58.8 in May 2025, indicating a robust expansion in the sector, he added.

Trade indicators also showed promising signs. “Merchandise 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,” said the RBI Governor.

Looking ahead, the central bank expects the upcoming southwest monsoon to further boost the rural economy. “The outlook for the agriculture sector and rural demand is expected to receive further impetus from the expected above-normal southwest monsoon rainfall. On the other hand, sustained buoyancy in services activity should nurture revival in urban consumption,” he added.

Trade Policy and Global Risks Remain Challenges

While domestic indicators remain optimistic, external challenges still persist. “Trade policy uncertainty, however, continues to weigh on merchandise exports prospects, while the conclusion of a free trade agreement (FTA) with the United Kingdom and progress with other countries should provide a fillip to trade in goods and services,” Malhotra said.

He further cautioned about the broader global environment and stated, “Spillovers emanating from protracted geopolitical tensions, global trade and weather-related uncertainties pose downside risks to growth.”

Despite these external risks, the RBI remained confident that government-led capital expenditure, improved business sentiment, and more favourable financial conditions would continue to fuel investment and economic expansion through the next fiscal year.