India’s economy stays resilient at 7.1%, but rising inflation raises a red flag, says RBI's Sanjay Malhotra

The growth forecast of Indian economy has been raised to 7.1% for 2026-27 from 6.7% projected in August but mounting inflationary pressures pose risks to the outlook, RBI Governor Sanjay Malhotra said in the minutes of the central bank’s latest policy meeting.

"Amidst the turbulent global backdrop, the Indian economy has shown remarkable resilience. Growth for the full year 2026-27 is now projected at 7.1 per cent, 40 bps higher than the projection of 6.7 per cent in August. Inflationary pressures are, however, building up," said Malhotra.

The Reserve Bank on Wednesday released the minutes of the meeting of the Monetary Policy Committee (MPC) held from October 5-7.

Along with the governor, the other five MPC members voted to raise the repo rate by 25 bps to 5.5 per cent.

The rate was hiked after a gap of nearly four years. The country's growth has held up better than expected, inflation risks are building again and the global interest-rate environment is making it harder for India to maintain a wide policy gap. The rate hike marks the first increase since February 2023, when it stood at 6.6%, and a reversal from the RBI’s rate-cut cycle, with the central bank now having greater confidence that the economy can absorb some monetary tightening without a significant hit to growth.

The governor noted that there are increasing signs of generalisation of inflation as 37 per cent of the commodities in the CPI basket had inflation above 4 per cent in August -- it was merely 20 per cent in March, said the minutes of the MPC meeting released on Wednesday.