Early resolution of geopolitical conflicts, weakening of global demand accompanied by further easing of global food and commodity prices, improvement in supply conditions and proactive supply side measures by the government could put downward pressure on inflation next fiscal, RBI said in its bi annual monetary policy report.
Upside risks to inflation will come from uneven distribution of rainfall, prolonged geopolitical conflicts and resultant supply disruptions, recent uptick in food and metal prices, volatility of crude oil prices and adverse weather events, the central bank said.
Economic growth for fiscal ended March 2026 is expected to ease slightly to 7.1% from 7.2% in the current fiscal, assuming a normal monsoon and no major exogenous or policy shocks. Robust government capex and revival in private investment, improved prospects of agricultural sector due to favourable monsoon rainfall, strengthening manufacturing and services sector activity sustained by strong domestic demand, retreating global and domestic inflation, improvement in global trade and earlier than anticipated easing of global financial conditions could provide an upside surprise to growth.
On the contrary, further escalation in geopolitical tensions, volatility in international financial markets and geoeconomic fragmentation, deceleration in global demand, frequent weather related disturbances due to climate change and supply chain disruptions could pose downside risks to the baseline growth path, RBI said.