‘Global Disruptions Pose Downside Risks’: RBI Slash India's GDP Forecast To 6.6% Amid Oil Shock

The Reserve Bank of India delivered a hit to economic projections, slashing its growth forecast for the financial year as prolonged international conflicts begin to strain the domestic economy.

Monetary Policy Committee (MPC) voted to keep the benchmark repo rate frozen at 5.25%.

Slashed GDP Targets

Citing heavy external headwinds, Governor Sanjay Malhotra announced that the central bank has lowered its real GDP growth projection for FY27 to 6.6%, down from the 6.9% forecast issued during the April policy review.

The updated projections indicate that economic deceleration will register immediately and persist through the first half of the fiscal year:

• Q1 FY27: 6.6% (Down from 6.8%)
• Q2 FY27: 6.3% (Down from 6.7%)
• Q3 FY27: 6.5% (Down from 7.0%)
• Q4 FY27: 6.8% (Down from 7.2%)

"Real GDP growth for this year is now projected at 6.6%. We had earlier projected 6.9%. Now projected at 6.6% for Q1, at 6.3% for Q2, at 6.5% for Q3 and Q4 at 6.8%,” said Sanjay Malhotra, RBI Governor.

West Asia War and Logistics 

Malhotra pointed directly to the ongoing geopolitical crisis in the Middle East as the core reason behind the economic downgrade. Malhotra stated that alternative trade pathways are creating long-term operational friction, driving up industrial overhead costs. "Global economic outlook remains clouded by the continuing geopolitical impasse in West Asia as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity."

He warned that these disruptions are no longer temporary shocks but are directly spilling over into domestic commercial parameters. "Prolonged global supply chain disruptions, volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook."

Corporate Input Costs 

The downgrade comes at a time when raw material costs are beginning to squeeze domestic manufacturing margins. RBI noted that while consumer demand remains intact, high energy prices will likely act as a headwind. "Overall, the economic situation has broadly exhibited resilience and withstood the conflict spillovers, although the impact of cost pressures is becoming visible. The rise in prices of energy and other inputs coupled with supply disruptions is likely to weigh on economic activity in future."

To balance these growth risks and stop foreign capital outflows, the RBI paired its growth revision with a significant market relaxation. The central bank opened up all new ultra-long-term government bonds (15, 30, and 40-year tenures) to Foreign Portfolio Investors (FPIs) without any investment limits.

Malhotra concluded by stating that while India entered this global crisis from a position of relative strength, the MPC must maintain its neutral stance and remain strictly data-dependent to protect the financial system from further external shocks.

Also read: RBI Expands FPI Access To Long-Term G-Secs Amid Big Bond Tax Relief News