CHAPTER I: ASSESSMENT AND PROSPECTS - Revision

RBI ANNUAL REPORT 2025-26

CHAPTER I: ASSESSMENT AND PROSPECTS

 

1. OVERALL ASSESSMENT

Global economy, I.1

Global growth was resilient at 3.4% in 2025, versus 3.3% in 2024, despite tariffs, policy uncertainty, high public debt and geopolitical tensions. Frontloading of imports, supply-chain adjustment and broadly accommodative financial conditions partly offset these headwinds. Global growth is projected at 3.1% in 2026, below the 3.7% long-term average for 2000-19. World goods and services trade is projected to grow 2.8% in 2026. Geopolitical and energy-price risks complicate central banks’ inflation-growth trade-off.

India, I.2-I.3

India remained the fastest-growing major economy, with GDP growth of 7.6% in 2025-26, against 7.1% a year earlier. Private consumption, investment, policy initiatives and sound macroeconomic fundamentals supported growth. Healthy bank and non-bank balance sheets supported double-digit credit growth. Low inflation, fiscal consolidation and adequate forex reserves strengthened resilience. For 2026-27, strong domestic demand, lower dependence on exports and a stable policy environment support the outlook, although energy/commodity prices, logistics costs and global trade uncertainty remain risks.

2. ASSESSMENT OF 2025-26

Global economy, I.4-I.6

Global growth remained 3.4% in 2025. Global inflation fell to 4.1% from 5.8% in 2024, but core/services inflation remained sticky and disinflation was uneven. World goods and services trade grew 5.1%; merchandise trade grew 4.6% versus 2.7% in 2024, helped by import frontloading ahead of tariffs and technology products exempt from tariffs. Services trade grew 5.3%, down from 7.8%, as the post-pandemic travel surge faded and transport services were subdued. Equity markets were supported by AI-related technology stocks, but tariff uncertainty, stretched valuations and geopolitical tensions caused episodes of turbulence. The US dollar had a depreciating bias through much of the period, followed by safe-haven strengthening after the West Asia conflict.

Domestic economy, I.7-I.13

GDP growth was 7.6% in 2025-26. Private consumption and fixed investment were key demand drivers; net exports dragged growth by 0.1 percentage point. Strong services and manufacturing offset subdued agriculture. Agriculture and allied real GVA growth slowed to 2.4% from 4.2%, despite favourable rabi conditions; foodgrain and horticulture output reached record levels. The National Mission on High Yielding Seeds was launched to improve productivity and domestic pulse availability.

Industrial growth was strong, led by manufacturing and supported by industrial credit, the National Manufacturing Mission and PLI-related policies. Manufacturing real GVA grew 11.5%, against 9.3% a year earlier. India ranked third globally in installed renewable capacity, exceeding 250 GW. As on March 31, 2026, non-fossil capacity was 283.5 GW, including 274.7 GW renewable and 8.8 GW nuclear. Renewable capacity comprised solar 150.3 GW, wind 56.1 GW, bio-energy 11.7 GW, small hydro 5.2 GW and large hydro 51.4 GW. EV sales exceeded 25 lakh in 2025-26; PM E-DRIVE, CNG, hybrids and E-20 supported cleaner mobility.

Services remained the main supply-side growth engine, contributing about 69% of real GVA growth. Trade/hotels/transport/communication/broadcasting/storage and financial, real estate, IT and professional services were important contributors. Services GVA grew 8.7%. Labour-market conditions were stable during January-December 2025; agriculture’s employment share declined while services, manufacturing and trade shares increased.

The Centre’s fiscal deficit was 4.4% of GDP in 2025-26 RE, meeting the objective of keeping GFD below 4.5%. Higher direct-tax and non-tax receipts and containment of revenue expenditure supported consolidation. State capital expenditure remained robust. The Sixteenth Finance Commission (2026-31) proposed ₹7,91,493 crore in grants for rural and urban local bodies; urban local-body grants rose 194.3%.

Inflation, I.13

Headline inflation moderated to 2.1% in 2025-26 from 4.6% in the previous year, mainly because of muted food-price pressures. LPG prices rose by ₹50 per cylinder in April 2025 and ₹60 in March 2026. Precious-metal prices, especially gold and silver, remained a source of pressure, while inflation excluding food, fuel and precious metals stayed benign because of GST rationalisation, soft global commodity prices and moderate input costs.

Monetary policy, liquidity and transmission, I.14-I.15

The MPC reduced the policy repo rate by 100 bps during 2025-26 while retaining a neutral stance since June 2025. Liquidity remained in surplus. Average daily net LAF absorption rose to ₹1.86 lakh crore from ₹1,605 crore a year earlier. Durable liquidity was injected through OMO purchases, USD/INR buy/sell swaps, longer-tenor VRR operations and four CRR-cut tranches. Total CRR reduction was 100 bps. WACR averaged 7 bps below the repo rate. During the easing cycle beginning February 2025, transmission to bank deposit/lending rates remained strong; the share of EBLR-linked floating-rate loans increased while MCLR-linked loans declined.

Financial markets and external sector, I.16-I.20

G-sec and corporate bond yields had a hardening bias amid uncertainty and volatile capital flows. Corporate bond issuances remained robust. Monetary easing, RBI OMO purchases and fiscal consolidation limited upward pressure on yields. The INR had a depreciating bias due to trade uncertainty, geopolitical tensions and FPI equity outflows; local-currency settlement and INR-denominated cross-border invoicing increased. Cross-border payment technology migration to ISO 20022 progressed.

India’s merchandise trade deficit widened to US$333.2 billion in 2025-26 from US$282.5 billion. Merchandise exports grew 0.9%, while imports grew 7.6%. A strong services surplus and private transfer receipts kept CAD at 1.0% of GDP during April-December 2025. Net FPI recorded an outflow of US$16.5 billion, while net FDI inflows were US$7.7 billion. Forex reserves declined by US$30.8 billion on a BoP basis during the period. End-March 2026 reserves were US$691.1 billion, equal to about 11 months of import cover and 90.3% external-debt cover.

Bank credit to the commercial sector grew 15.9%, versus 10.9% a year earlier; non-bank sources grew 13.3%, versus 15.1%. Credit growth outpaced deposits, raising the credit-deposit ratio. Bank profitability and asset quality improved, GNPA fell to a multi-decadal low, and CRAR remained well above regulatory minimums. NBFCs and UCBs also retained robust asset quality/capital buffers.

Regulation and supervision, I.21-I.22

RBI’s regulatory work focused on: (1) harmonising/consolidating instructions across regulated entities and (2) establishing prudential and conduct guardrails for evolving credit-intermediation models. More than 11,000 circulars/instructions were consolidated into 244 Master Directions across 30 regulatory functions/areas and 11 types of regulated entities. Supervisory work included action against cyber-enabled frauds and money-mule activity, the Cyber Range initiative, KYC/AML risk assessment of NBFCs, stronger cross-border supervisory cooperation and capacity building. Sixty-four draft Master Directions across nine functional areas were released for public comments.

CBDC, AI and digital payments, I.23-I.25

CBDC pilots expanded into programmable DBT use cases, including PDS subsidies in Gujarat, Puducherry and Chandigarh, redeemable at eligible fair-price shops/identified merchants. RBI developed the Unified Markets Interface (UMI) for tokenisation/settlement and piloted tokenisation of Certificates of Deposit. RBI signed an MoU with MAS on digital-asset collaboration and held bilateral discussions with MAS and CBUAE on cross-border CBDC use cases. RBI also participated in BIS Innovation Hub Project Rialto and Phase 2 of Project Mandala.

The FREE-AI Committee developed a framework for responsible and ethical AI use in finance. Government launched Bharat Gen in June 2025 as a sovereign multilingual and multimodal LLM focused on Indian languages, governance and public services. The India AI Impact Summit 2026 in February concluded with the New Delhi Declaration on AI Impact.

RBI-DPI increased 11% during 2025-26. UPI transaction volume grew 30%, versus 42% in 2024-25, and exceeded 200 billion transactions. RBI continued international UPI linkages for remittances and merchant payments. Payment-system measures emphasised customer centricity, resilience, fraud control, stronger AePS, payment-aggregator directions, authentication and continuous clearing/settlement on realisation under CTS.

Financial inclusion and customer protection, I.26-I.28

RBI’s FI-Index rose from 64.2 in March 2024 to 67.0 in March 2025, with improvement across access, usage and quality. Financial Literacy Week 2026 carried the theme “KYC, Your First Step to Safe Banking”. NSFI 2025-30 was released in December 2025. The Ombudsman framework was extended to rural co-operative-bank customers; RBI Integrated Ombudsman Scheme 2026 and Internal Ombudsman directions strengthened complaint handling. A re-KYC campaign also supported awareness on unclaimed deposits. The revised Citizen’s Charter, effective July 1, 2025, rationalised service timelines and emphasised accessibility, responsiveness and transparency.

3. PROSPECTS FOR 2026-27

Global outlook, I.29-I.30

Geopolitical risk, particularly the West Asia conflict, is the dominant drag. IMF baseline global growth is 3.1% for 2026, down from 3.3% projected in January 2026; world goods/services trade is projected at 2.8%. Global inflation is projected at 4.4%, up from the earlier 3.8% projection. Prolonged conflict, energy-price shocks, shipping disruption, protectionism, debt concerns and technology-sector valuation corrections are key risks.

India: agriculture and manufacturing, I.31-I.33

India’s 2026-27 outlook remains positive because of strong macro fundamentals, healthy corporate/bank balance sheets, continued public capital expenditure and trade agreements. Agriculture depends on the south-west monsoon; El Niño is a downside risk, while a favourable Indian Ocean Dipole could partly offset it. Higher irrigation, better crop management and technology have reduced rainfall sensitivity. Budget 2026-27 initiatives include crop diversification, high-value crops, fisheries/aquaculture and the proposed Bharat-VISTAAR, a multilingual AI-based agricultural advisory system.

Seven strategic/frontier manufacturing sectors are: electronics, semiconductors, biopharma, rare earths, chemicals, textiles and capital goods. PLI and PM E-DRIVE support green-tech manufacturing and energy security. Freight corridors, waterways, coastal shipping and last-mile connectivity support industrial integration. Full implementation of the four labour codes is expected to strengthen domestic demand and productivity. Real GDP growth for 2026-27 is projected at 6.9%, with risks tilted downside.

Climate and fiscal outlook, I.34-I.36

India’s 2031-35 NDC targets include 60% of installed electric capacity from non-fossil sources, a 47% reduction in GDP emission intensity from 2005 levels, and a 3.5-4.0 billion tonne CO₂-equivalent carbon sink by 2035. For 2026-27, direct taxes are budgeted at 6.9% of GDP; Centre GFD at 4.3% of GDP; states’ consolidated GFD at 3.0% of GSDP; gross transfers to states rise 12.2%; and effective capital expenditure is 4.4% of GDP. CPI inflation is projected at 4.6%, with risks tilted upside.

Monetary policy, I.37

At the April 2026 MPC meeting, the policy repo rate was kept unchanged at 5.25% and the neutral stance was retained. The inflation target was retained at 4% with a ±2 percentage-point tolerance band for April 1, 2026 to March 31, 2031.

External sector, AI and financial-system outlook, I.38-I.45

Domestic bond yields face upside risk if global monetary easing stalls/reverses due to oil shocks and Middle East tensions; fiscal consolidation and RBI liquidity operations can moderate this pressure. Export risks arise from geopolitical and trade-policy uncertainty, while trade agreements and strategic manufacturing can improve competitiveness and reduce critical import dependence.

Budget 2026-27 flagship measures include Biopharma SHAKTI, India Semiconductor Mission 2.0, electronics-component manufacturing, rare-earth corridors, chemical parks, capital-goods/container manufacturing support and the Infrastructure Risk Guarantee Fund. Biopharma SHAKTI has an outlay of ₹10,000 crore over five years. A data-centre tax holiday is available till 2047 for eligible foreign companies using India-based data-centre services, with a safe-harbour provision of minimum 15% on cost. Space-sector FDI is permitted up to 100% in specified satellite manufacturing/components activities. India AI Summit 2026 involved infrastructure investment commitments of US$250 billion till 2047.

The AI Impact Summit declaration was endorsed by 92 countries and international organisations. India ranked third for AI competitiveness and ecosystem vibrancy. IndiaAI Mission, launched in March 2024, has an outlay of ₹10,372 crore; more than 38,000 GPUs were onboarded. Cumulative private AI investment was about US$11 billion during 2013-2024. India ranked fifth globally in greenfield AI-related announcements in 2024-25, according to fDi Markets. Bharat Innovates 2026 sought to connect Indian start-ups with global investors and research groups.

The banking system is expected to remain resilient, though geopolitical/supply-chain risks could affect corporate earnings, loan portfolios and investment portfolios. RBI’s 2026-27 regulatory priorities are customer protection and a stronger credit ecosystem: strengthening KYC, extending video-based identification to NRI customers, responsible-business conduct, review of interest-rate/credit-risk directions, mechanisms for credit-risk transfer/distribution and a shared-loan framework. Board-level reporting requirements will also be rationalised.

Supervision will emphasise early risk identification, root-cause analysis, consistent practices, risk-based KYC/AML supervision of SCBs, micro-data analytics and a Supervisory Data Quality Index for Tier 3 and Tier 4 UCBs. Risk-based supervision frameworks will also be examined for selected NBFCs and UCBs.

Payments, CBDC and inclusion, I.45-I.48

RBI plans to expand CBDC pilots into additional DBT and domestic-retail use cases, explore tokenisation pilots and deepen cross-border CBDC projects. ULI will be scaled through more data-service providers and lenders. MuleHunter.ai, developed by RBIH for near-real-time identification of mule accounts, will be expanded across banks with features including a Mule Registry.

Payments Vision 2028, themed “Shaping India’s Payment Frontier”, is a roadmap up to December 2028, focusing on user empowerment, fraud safeguards, cross-border payments and ease of doing business. 2026-27 priorities include the Digital Payments Intelligence Platform (DPIP), switch-on/switch-off facilities for digital payment modes, broader customer-liability protection for fraudulent electronic transactions and compensation for small-value frauds.

RBI plans a revised FI-Index computation framework and implementation of NSFI 2025-30 actions. The objective is for every eligible account holder in every district to have access to at least one digital-payment mode, including UPI, cards, internet/mobile banking, USSD or AePS. Grievance mechanisms at regulated entities will be strengthened.

4. CONCLUSION, I.49

The Indian economy remained resilient in 2025-26 because of private consumption, investment and sound fundamentals. The 2026-27 outlook remains positive, but West Asia volatility, energy prices, supply-chain disruptions, trade-policy uncertainty and weather shocks remain risks. Healthy corporate/bank balance sheets, public capital expenditure and trade agreements provide support. Continuous assessment of evolving conditions is necessary for appropriate policy responses.

5. IMPORTANT NUMBERS, LAST-MINUTE TABLE

Topic	Figure	Context
Global growth	3.4% (2025); 3.1% (2026 proj.)	Long-term avg 2000-19 = 3.7%
India GDP	7.6% (2025-26); 6.9% (2026-27 proj.)	Previous year = 7.1%
Inflation	2.1% (2025-26); 4.6% (2026-27 proj.)	Target = 4% ±2%
Repo rate	5.25%	Unchanged April 2026
Repo reduction	100 bps	During 2025-26
CRR reduction	100 bps	Four tranches
LAF net absorption	₹1.86 lakh crore	Average daily
Bank credit	15.9%	2025-26 growth
Non-bank credit	13.3%	2025-26 growth
Forex reserves	US$691.1 bn	End-March 2026
Import cover	~11 months	End-March 2026
External debt cover	90.3%	End-March 2026
CAD	1.0% of GDP	Apr-Dec 2025
Trade deficit	US$333.2 bn	2025-26
Non-fossil capacity	283.5 GW	31 March 2026
Renewable capacity	274.7 GW	Of non-fossil
Services share	~69%	Real GVA growth
RBI-DPI	+11%	2025-26
UPI	+30%; 200 bn+	Transaction volume
FI-Index	67.0	March 2025; 64.2 in March 2024
Master Directions	244	11,000+ circulars consolidated
Regulatory scope	30 areas; 11 RE types	Consolidation
Draft supervisory MDs	64	9 functional areas
Central GFD	4.4% GDP	2025-26 RE
Central GFD	4.3% GDP	2026-27 projection
State GFD	3.0% GSDP	2026-27
Transfers to states	+12.2%	2026-27
Biopharma SHAKTI	₹10,000 cr / 5 years	Budget 2026-27
IndiaAI Mission	₹10,372 cr	Outlay
Space FDI	Up to 100%	Specified activities
Safe harbour	Minimum 15% of cost	Specified data-centre arrangement

6. IMPORTANT INITIATIVES / PROGRAMMES

Initiative	Organisation	One-line purpose/key fact
National Manufacturing Mission	GoI	Strengthen manufacturing
PLI	GoI	Support manufacturing/investment
PM E-DRIVE	GoI	Clean/electric mobility
National Mission on High Yielding Seeds	GoI	Crop productivity
Bharat-VISTAAR	GoI	AI-based multilingual farm advisory
Biopharma SHAKTI	GoI	Biologics/biosimilars; ₹10,000 cr/5 yrs
India Semiconductor Mission 2.0	GoI	Semiconductor ecosystem
IndiaAI Mission	GoI	AI ecosystem; ₹10,372 cr
Bharat Gen	GoI	Sovereign multilingual/multimodal LLM
FREE-AI Framework	RBI/Committee	Responsible AI in finance
CBDC pilots	RBI	Programmable DBT, retail and cross-border use cases
UMI	RBI	Tokenisation/settlement; CD tokenisation pilot
NSFI 2025-30	RBI	Financial inclusion strategy
Payments Vision 2028	RBI	Payment-system roadmap to Dec 2028
DPIP	RBI	Digital-payment intelligence/fraud prevention
MuleHunter.ai	RBIH	Near-real-time mule-account identification
RBI Integrated Ombudsman Scheme 2026	RBI	Customer grievance redressal

7. DATES / PERIODS TO REMEMBER

Date/Period	Event / fact
Feb 2025	Easing cycle began
June 2025	Neutral monetary-policy stance retained
June 2025	Bharat Gen launched
July 1, 2025	Revised Citizen’s Charter effective
Dec 2025	NSFI 2025-30 released
March 2026	End-March forex reserves = US$691.1 bn
March 31, 2026	Non-fossil capacity = 283.5 GW
April 2026	MPC kept repo at 5.25%
April 1, 2026-Mar 31, 2031	Inflation target framework
Feb 2026	India AI Impact Summit
2026-27	GDP projection = 6.9%; CPI = 4.6%
2031-35	Updated NDC period
2035	Climate targets
December 2028	Payments Vision 2028 horizon
2047	Specified data-centre tax holiday / long-term commitments

8. CONFUSION POINTS

Easily confused	Correct distinction
283.5 vs 274.7 GW	283.5 = total non-fossil; 274.7 = renewable
7.6 vs 6.9%	2025-26 GDP actual/estimate vs 2026-27 projection
2.1 vs 4.6%	2025-26 headline inflation vs 2026-27 projection
5.25 vs 4%	Repo rate vs inflation target
15.9 vs 13.3%	Bank credit vs non-bank credit growth
11% vs 30%	RBI-DPI growth vs UPI transaction-volume growth
64.2 vs 67.0	FI-Index March 2024 vs March 2025
4.4 vs 4.3%	Centre GFD 2025-26 RE vs 2026-27 projection
11,000+ vs 244	Circulars/instructions consolidated vs Master Directions
30 vs 11	Regulatory areas vs types of regulated entities
UMI vs ULI	UMI: tokenisation/markets; ULI: digital lending
DPIP vs MuleHunter.ai	DPIP: digital-payment intelligence; MuleHunter: mule-account model
₹10,000 cr vs ₹10,372 cr	Biopharma SHAKTI vs IndiaAI Mission
15% vs 100%	Safe-harbour percentage vs specified space-sector FDI ceiling

9. LAST-MINUTE 20 FACTS

1. India GDP growth: 7.6% in 2025-26; 6.9% projected for 2026-27.

2. Net exports dragged 2025-26 growth by 0.1 percentage point.

3. Manufacturing GVA = 11.5%; services GVA = 8.7%; agriculture GVA = 2.4%.

4. Services contributed about 69% of real GVA growth.

5. Headline inflation = 2.1% in 2025-26; CPI projection = 4.6% for 2026-27.

6. Repo = 5.25%; inflation target = 4% ±2% for April 1, 2026-March 31, 2031.

7. Repo reduction = 100 bps; CRR reduction = 100 bps in four tranches.

8. Forex reserves = US$691.1 bn; import cover ~11 months.

9. CAD = 1.0% of GDP during April-December 2025.

10. Bank credit grew 15.9%; non-bank credit grew 13.3%.

11. Non-fossil capacity = 283.5 GW; renewable = 274.7 GW as on March 31, 2026.

12. RBI-DPI rose 11%; UPI volume rose 30% and crossed 200 bn transactions.

13. FI-Index rose 64.2 to 67.0 between March 2024 and March 2025.

14. 11,000+ circulars/instructions were consolidated into 244 Master Directions.

15. The consolidation covers 30 regulatory functions/areas and 11 types of REs.

16. NSFI 2025-30 was released in December 2025; FLW 2026 theme was KYC, Your First Step to Safe Banking.

17. IndiaAI Mission outlay = ₹10,372 crore; 38,000+ GPUs onboarded.

18. Biopharma SHAKTI = ₹10,000 crore over five years; specified space-sector FDI = up to 100%.

19. Payments Vision 2028 runs to December 2028; DPIP, digital-payment switch-on/off and small-value fraud compensation are key future measures.

20. MuleHunter.ai is an RBIH machine-learning model for near-real-time identification of mule accounts; expansion will include a Mule Registry.