Reserve Bank Pins Hopes on Good Monsoon and Farm Initiatives for Robust Economic Performance in 2025-26

Favourable Monsoon, New Farm Schemes Bolster India's 2025-26 Growth Outlook: RBI

India's economic growth trajectory for the 2025-26 fiscal year is projected to remain robust, significantly underpinned by an anticipated strong performance in the agriculture sector due to an expected above-normal Southwest Monsoon and several new government initiatives. This positive outlook, detailed in the Reserve Bank of India's (RBI) latest Annual Report for 2024-25, is also considered crucial for maintaining consumer price inflation within the central bank's target.

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Agriculture Sector Poised for Strong Performance

The RBI report highlights that prospects for the agricultural sector appear "favourable in 2025-26," a view supported by the forecast of an above-normal monsoon and various productivity-enhancing government policies introduced in the Union Budget 2025-26. Key among these new schemes are the Prime Minister Dhan-Dhaanya Krishi Yojana, designed to boost productivity in specific districts; a Mission for Aatmanirbharta (self-reliance) in pulses; programs to promote fruit and vegetable production and processing; and the National Mission on High Yielding Seeds. Additionally, efforts towards sustainable farming are being promoted, including a plan to bring one crore farmers under the National Mission on Natural Farming, aimed at enhancing climate resilience and soil health. The credit limit under the Kisan Credit Card (KCC) scheme has also been significantly increased.

Positive Farm Outlook

This optimistic agricultural forecast is a key factor in the RBI's projection of Consumer Price Index (CPI) inflation at 4.0 percent for 2025-26, with risks considered "evenly balanced." Reflecting a moderating inflation trend (which eased to 4.6 percent in 2024-25), the RBI's Monetary Policy Committee (MPC) in April 2025 reduced the policy repo rate by 25 basis points to 6.0 percent and shifted its stance to "accommodative." This move signals growing confidence in aligning headline inflation with the 4.0 percent target over a 12-month horizon.

Despite the promising domestic outlook, the RBI report cautions that external factors such as global trade uncertainties stemming from protectionist measures, protracted geopolitical tensions, global financial market volatility, and the increasing incidence of climate shocks pose downside risks to growth and upside risks to inflation, necessitating careful monitoring, especially of food prices.

The Reserve Bank of India's assessment indicates that while strong domestic fundamentals, including a resilient services sector and healthy corporate and bank balance sheets, support a positive economic outlook for 2025-26, the performance of the agriculture sector, buoyed by favorable monsoons and new farm support schemes, will be paramount. Prudent management of farm output and vigilance against global uncertainties will be key to sustaining growth momentum and price stability.