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However, India’s growth outlook remains positive, it said. Considering various factors, and on the assumption that the adverse impact of the West Asia conflict would remain contained in the near-term, real GDP growth for 2026-27 is projected at 6.9 per cent with risks tilted to the downside, the RBI said in its Annual Report for 2025-26.

The RBI Annual Report said inflation in 2026-27 is likely to remain aligned with the target on the back of adequate foodgrain stocks, sufficient reservoir levels and stable agricultural prospects despite possible El Niño conditions and above-normal summer temperature. However, the evolving upside risks to inflation may emanate from multiple other factors such as spike in global fuel and commodity prices amid geopolitical tensions, potential spillovers to input and wage costs, and volatility in exchange rate, the RBI said.

Considering all these factors, CPI inflation for 2026-27 is projected at 4.6 per cent with risks tilted to the upside, it said.

The RBI’s Monetary Policy Committee (MPC) will announce the new interest rate policy on June 5.

The central bank said geopolitical risk has re-emerged as the dominant drag on global growth in 2026. “The adverse impact of outbreak of the conflict in West Asia in end-February 2026 is reflected in the forecasts of global growth and inflation,” the RBI said.

The RBI said elevated valuations in technology sectors may undergo reassessment, raising the risk of corrections in equity markets. With increased protectionism and debt sustainability concerns, the escalating geopolitical risk calls for coordinated policy actions across fiscal, monetary and multilateral fronts.

It said the Indian economy exhibited resilience in 2025-26, amidst several external headwinds, supported by strong private consumption, sustained investment and sound macroeconomic fundamentals.

The report said healthy corporate and bank balance sheets, the government’s continued thrust on capital expenditure and the implementation of trade agreements with the key partners are expected to sustain investment and growth momentum. Nevertheless, in a highly uncertain global environment, continuous assessment of the evolving developments is warranted to frame the appropriate policy response on an ongoing basis, it said.

Initiatives announced in the Union Budget 2026-27, focusing on diversification, targeted promotion of high-value crop cultivation across regions, enhancing commercial viability of fisheries and aquaculture, and a greater push towards technology adoption with the proposed launch of Bharat-VISTAAR would support strong and sustainable growth in the agriculture and allied sectors, the RBI said.