RBI surveys find overall stability in the economy

The latest round of the professional forecasters’ surveys shows that there is overall stability in the economy. The economic growth is expected to remain strong in FY27, despite a higher base of FY26, with both investments and consumption rates expected to improve marginally yoy. Current account is expected to remain stable. Prices are expected to stay stable. Industries have reported some improvement in capacity utilization, and new orders in the recent quarters. Banks expect the loan demand to improve and lending terms & conditions to stay easy in FY27. Rural consumers have shown improvement in confidence, though urban consumers are slightly less confident about FY27 spending.

The following are the key highlights of the latest Forward Looking Survey (FLS) of RBI.

Macroeconomic indicators

·         Real gross domestic product (GDP) is expected to grow by 7.5 per cent in 2025-26 and by 6.8 per cent in 2026-27.

·         Real private final consumption expenditure (PFCE) is expected to grow at 7.4% in FY26 and 7.1% in FY27.

·         Real gross fixed capital formation (GFCF) is expected to grow at 7.4% in FY26 and 7.2% in FY27.

·         Annual headline inflation, based on CPI-Combined, is expected at 2% during FY26 and at 4% during FY27.

·         Core inflation (CPI inflation, excluding food and beverages, pan, tobacco and intoxicants, and fuel and light), is expected at 4% during Q4FY26 and thereafter it is projected to gradually moderate to 4.2% by Q3FY27.

·         Merchandise exports and imports are projected to grow by 1.3% and 6%, respectively, during FY26 and by 3.3% and 5.9%, respectively, during FY27, in US dollar terms.

·         Current account deficit (CAD) is expected at 1% (of GDP at current market prices) for both FY26 and FY27.

Manufacturing sector

·         Manufacturers’ optimism on demand conditions improved for Q3FY26 as compared to the previous quarter, as reflected in their assessment on production, order books and capacity utilization.

·         Responding firms reported higher pressure from raw material costs and wage bill. Manufacturers’ sentiments turned pessimistic with regard to growth in selling prices and profit margins.

·         Manufacturers outlook for Q4FY26 remains positive, albeit with some moderation, reflecting a weaker outlook on production, order books, capacity utilization and exports.

·         Demand conditions are expected to improve during H1FY27. Manufacturers expect input cost pressures to persist, but they also anticipate better pricing power in terms of higher growth in selling prices.

·         At the aggregate level, capacity utilization (CU) in the manufacturing sector increased marginally to 74.3% in Q2FY26 from 74.1% in the previous quarter. However, the seasonally adjusted CU (CU-SA) declined by 100bps from the previous quarter and stood at 74.8% in Q2FY26.

·         Manufacturers reported higher growth in new orders during Q2FY26 on a sequential (qo-q) basis. On an annual (y-o-y) basis, the growth continued to remain stable.

·         As a ratio to sales, the finished goods inventory (FGI) remained stable while the raw material inventory (RMI) declined during Q2FY26.

Credit growth

·         Bankers assessed higher loan demand from most of the sectors of the economy during Q3FY26 as compared to the previous quarter. Majority of the responding bankers indicated easier loan terms and conditions.

·         Bankers’ outlook on overall loan demand improved for Q4FY26, mainly driven by manufacturing, infrastructure, services, and retail/personal loans sectors.

·         Responding bankers continue to expect increased loan demand and easier loan terms and conditions from all major sectors till Q2FY27.

Services sector

·         Service sector firms’ assessment on overall business situation and their turnover during Q3FY26 remained positive though tempered a bit from that in the previous quarter.

·         Firms assessed moderation regarding pressures from input costs and salary outgo during Q3FY26. Sentiments on growth in selling prices and profit margins moderated but remained positive.

·         Pressure emanating from input costs is likely to rise during Q4FY26; however, pressure stemming from finance costs is expected to ease. Services firms expect selling prices to increase; profit margin is likely to remain positive during Q4FY26.

·         Services companies expect improvement in the overall business situation, turnover and employment in 1HFY27. Input cost pressures are likely to persist for services firms; with sequential rise in selling prices.

Infrastructure sector

·         Infrastructure companies reported positive assessment of overall business situation and their turnover, though their sentiments moderated vis-à-vis the previous quarter.

·         Infrastructure firms gauged higher pressures stemming from input costs, salary outgo and cost of finance and lower growth in selling prices and profit margins as compared to the previous quarter.

·         Responding firms expect sequential improvement in demand conditions till Q2FY27. Input cost pressures are likely to persist in the near term and growth in selling prices are expected to remain at an elevated level.

Consumer confidence

·         Rural consumers continue to show improvement in one-year-ahead outlook, though respondents’ perception on prices and inflation worsened in the latest survey round.

·         Urban consumers are however less confident about the one-year-ahead outlook, owing mainly to lower expectations on general economic conditions, income and price level compared to the previous round.