New Delhi: The Reserve Bank of India (RBI) has raised its projection for India’s real gross domestic product (GDP) growth in FY27 to 7.1%, up from its earlier estimate of 6.7%, citing stronger-than-expected economic activity and improved growth momentum.

The upgraded forecast was announced by RBI Governor Sanjay Malhotra after the Monetary Policy Committee (MPC) meeting on October 7. The central bank’s latest assessment comes even as it raised the repo rate by 25 basis points to 5.5% and shifted its monetary policy stance to calibrated tightening.

The RBI’s decision to raise the growth outlook while tightening monetary policy reflects its assessment that India’s underlying economic momentum remains strong despite inflationary and global risks.

RBI sees stronger growth momentum

The central bank’s earlier FY27 GDP growth projection stood at 6.7%. The latest 40-basis-point upward revision takes the forecast to 7.1%.

Governor Malhotra said domestic economic activity remains resilient, supported by consumption and investment demand. The stronger growth outlook also comes against the backdrop of robust economic indicators during the first half of the financial year.

The RBI has retained its 7.1% growth projection for the first quarter of FY28, indicating that the central bank expects the economy to maintain relatively strong momentum beyond the current financial year.

The revised forecast is significant because it comes alongside a tighter monetary policy stance. Ordinarily, higher interest rates can weigh on borrowing and investment, but the RBI appears confident that India’s economic fundamentals can withstand the modest increase in the policy rate.

Repo rate raised to 5.5%

Along with the GDP forecast upgrade, the MPC increased the benchmark repo rate by 25 basis points to 5.5%.

The move marks the first repo rate hike since February 2023. The RBI had embarked on a rate-cutting cycle in 2025, reducing the repo rate by a cumulative 125 basis points before keeping it unchanged at 5.25% for several policy reviews.

The latest increase signals a shift in policy priorities as inflation risks have become more pronounced.

The RBI has also changed its stance to calibrated tightening, indicating that policymakers are no longer considering near-term rate cuts under the current economic conditions.

Inflation remains a key concern

Despite the stronger growth outlook, inflation continues to be an important concern for the central bank.

India’s consumer price inflation rose to 4.82% in August from 4.45% in July, according to the data cited in the RBI’s policy assessment. Core inflation has also shown signs of firming up.

The RBI has raised its FY27 core inflation projection to 4.4% from 4.3% earlier.

Governor Malhotra has pointed to broader inflationary pressures and risks from global developments. The conflict in West Asia, elevated crude oil prices and potential supply-chain disruptions could affect India’s inflation outlook.

Weather-related risks are another factor being monitored by policymakers, particularly because food prices can have a significant influence on headline inflation.

Growth remains resilient despite global risks

The RBI’s higher GDP projection indicates that policymakers continue to see India’s domestic economy as relatively resilient.

Consumption remains an important driver of growth, while investment activity and government spending are also supporting economic momentum.

The services sector continues to play a significant role in the economy, while manufacturing and infrastructure-related activity are expected to contribute to growth.

However, the RBI’s assessment also highlights risks from the global environment. Higher energy prices could raise input costs for Indian businesses and increase the country’s import bill.

A prolonged disruption to international trade and supply chains could also affect industrial activity and exports.

The central bank will therefore need to balance growth-supportive conditions with its mandate of maintaining price stability.

What the 7.1% forecast means for India

The upward revision is positive for the broader economic outlook. A 7.1% growth projection suggests the RBI expects India to remain among the world’s faster-growing major economies despite tighter monetary conditions.

For businesses, stronger projected growth could support investment and hiring decisions. For investors, the revision could reinforce expectations that corporate earnings and economic activity will remain relatively resilient.

However, the higher forecast does not mean that risks have disappeared.

The combination of a higher repo rate and calibrated tightening means borrowing conditions could become less favourable if the RBI raises rates further. Businesses dependent on credit may face higher financing costs, while households with floating-rate loans could see an increase in their interest burden.

RBI faces balancing act

The latest MPC decision highlights the balancing act facing the central bank.

On one side, the RBI has upgraded its growth forecast to 7.1%, reflecting confidence in domestic economic activity. On the other, rising inflation and external risks have prompted the central bank to raise interest rates.

The policy approach suggests that the RBI is willing to tolerate somewhat tighter financial conditions to prevent inflation from becoming entrenched.

Future policy decisions will depend heavily on incoming inflation and growth data, along with developments in global commodity markets.

The trajectory of crude oil prices, the impact of the West Asia conflict, food inflation and domestic demand will remain key indicators for policymakers.

For now, the RBI’s revised 7.1% FY27 GDP growth projection provides a positive signal about the strength of the Indian economy, even as the central bank moves towards a more cautious monetary policy stance.