India's GDP Growth to Slow as Inflation Stabilizes

India's economy is at a pivotal moment as the Gross Domestic Product (GDP) growth is expected to moderate in line with inflation nearing the Reserve Bank of India's (RBI) target of 4%. Saugata Bhattacharya, a member of the RBI's Monetary Policy Committee (MPC), shared insights on the economic outlook, emphasizing a shift from the initially high growth rates observed in early FY26.

According to Bhattacharya, the GDP growth is projected to average around 7% in the latter half of FY26, a decline from the earlier forecast of 8%. This moderation is anticipated as inflation is expected to stabilize. The RBI targets inflation to remain within a 2% range around the 4% mark, which is crucial for maintaining economic stability.

Earlier this month, the MPC made a strategic decision to cut the repo rate by 25 basis points to 5.25% to foster growth amid a complex economic landscape. Bhattacharya noted that while the initial half of FY26 experienced unexpectedly high growth, driven by lower-than-expected Consumer Price Index (CPI) inflation, there are signs of a slight moderation in economic momentum.

He pointed out that high-frequency indicators suggest a shift, primarily influenced by trade-related factors. However, these changes appear to be temporary. The panel member reassured that current data does not indicate that the economy is overheating, which is vital for policymakers to consider.

Manufacturing output remains stable, operating at around 74-75% capacity utilization, which is lower than the usual 80% seen in the past. This suggests that producers still possess pricing power without pushing inflation beyond the set targets. Additionally, external supply factors are contributing to this scenario, maintaining a balance in the market.

Looking ahead, Bhattacharya emphasized the uncertainty that makes predicting further repo rate cuts challenging. The committee's decisions will be based on available data and emerging risks in the economy, underlining the importance of a careful and informed approach to monetary policy.

In summary, while the RBI aims to support growth through monetary policy interventions, the moderation in GDP growth and stabilizing inflation reflect the complexities of India's economic landscape, necessitating a cautious yet proactive approach moving forward.