Mumbai, Feb 7 (PTI) Reserve Bank on Friday projected the growth rate for the upcoming financial year at 6.7 per cent, up from 6.4 per cent estimated for the current fiscal ending March.

Healthy Rabi prospects and an expected recovery in industrial activity should support economic growth in 2025-26, RBI Governor Sanjay Malhotra said while announcing his first bi-monthly monetary policy for the current fiscal.

Among the key drivers on the demand side, household consumption is expected to remain robust aided by the tax relief in the Union Budget 2025-26, he said.

Finance Minister Nirmala Sitharaman in Budget 2025-26 provided the biggest-ever tax break to the middle class to boost consumption after the economy slowed to its lowest pace since the pandemic.

India's GDP growth fell to a 7-quarter low of 5.4 per cent in July-September period of current financial year 2024-25, as against RBI's own projection of 7 per cent.

The gross domestic product (GDP) rate of 6.4 per cent will be the lowest since the Covid year (2020-21), when the country witnessed a negative growth of 5.8 per cent. It was 9.7 per cent in 2021-22; 7 per cent in 2022-23; and 8.2 per cent in the last fiscal ended March 2024.

Presenting her eighth straight budget, Sitharaman on February 1, announced an increase in the personal income tax threshold below which taxpayers owe no tax to Rs 12 lakh, up from Rs 7 lakh, as well as a rejig in tax brackets that would help those earning higher than that save up to Rs 1.1 lakh.

The RBI Governor said, fixed investment is expected to recover, supported by higher capacity utilisation levels, healthy balance sheets of financial institutions and corporates, and the government's continued emphasis on capital expenditure.

"Taking all these factors into consideration, real GDP growth for 2025-26 is projected at 6.7 per cent with Q1 at 6.7 per cent; Q2 at 7.0 per cent; and Q3 and Q4 at 6.5 per cent each. The risks are evenly balanced," he said.

The Economic Survey tabled in Parliament last week had projected India's economy to grow at 6.3-6.8 per cent in 2025-26, on the back of strong macroeconomic fundamentals, though strategic and prudent policy management will be required to navigate global headwinds.

The GDP growth rate is estimated to slip to 4-year low of 6.4 per cent in the current financial year ending March 2025, close to its decadal average.

The key pre-Budget document also emphasised that the country needs to grow at 8 per cent for up to two decades to become a developed nation or Viksit Bharat by 2047.

In its December monetary policy review, the central bank had significantly lowered the growth projection for the current fiscal year to 6.6 per cent from 7.2 per cent earlier.

According to the first advance estimates of National Income for 2024-25, GDP has been estimated to grow by 6.4 per cent in FY 2024-25, as compared to the growth rate of 8.2 per cent in the provisional estimate for FY 2023-24. PTI NKD DP DRR DRR

Tax relief in Budget boosts consumption and supports a stronger GDP growth projection for the coming fiscal year. Reserve Bank projects 6.7 per cent real GDP growth for the next fiscal, attributing support to improved agricultural output, an industrial recovery, robust household consumption aided by the Union Budget's tax relief and higher disposable incomes, and a recovery in fixed investment driven by capacity utilisation, healthier balance sheets, and continued government capital expenditure emphasis; risks to the outlook are assessed as evenly balanced.