Mumbai, May 29 (PTI) Robust macroeconomic fundamentals will support the growth trajectory of the Indian economy in the current fiscal year despite headwinds from elevated energy prices, supply chain disruptions, and global markets, the Reserve Bank of India (RBI) said in its Annual Report on Friday.

Healthy balance sheets of the corporate and banking sectors, along with the government's continued thrust on capital expenditure, bode well for India's strong growth trajectory, it said.

Geopolitical risk has re-emerged as the dominant drag on global growth in 2026, the report said, adding that the adverse impact of the outbreak of the conflict in West Asia at the end of February 2026 is reflected in forecasts for global growth and inflation.

"Against the backdrop of a moderate global growth, the outlook for the Indian economy in 2026-27 remains positive, supported by strong macroeconomic fundamentals, although a prolonged West Asia conflict may pose downside risk," it said.

Moreover, the implementation of various trade agreements with the key trading partners would provide further momentum to India's growth, the RBI's Annual Report for 2025-26 said.

India remained the fastest-growing major economy, expanding at 7.6 per cent during 2025-26 (7.1 per cent a year ago), supported by strong domestic consumption, sustained investment, proactive policy initiatives and sound macroeconomic fundamentals.

The report further said the outlook for the agriculture sector in 2026-27 remains contingent upon the progress and distribution of the South-West monsoon.

"The likelihood of El Nino conditions poses downside risks to agricultural output," it said. However, the rain-inducing positive Indian Ocean Dipole (IOD) conditions are likely to emerge towards the latter part of the monsoon season, which may partly offset adverse impacts.

"While the ongoing geopolitical tensions are likely to exert pressure on the availability and prices of key inputs, particularly fertilisers, the government's continued efforts in ensuring adequate availability of fertiliser and other key inputs through diversified sources and buffer management are expected to mitigate these potential concerns," it said.

The report also said inflation in 2026-27 is likely to remain aligned with the target on the back of adequate foodgrain stocks, sufficient reservoir levels and stable agricultural prospects despite possible El Nino conditions and above-normal summer temperature.

The central government, in consultation with the Reserve Bank, retained the inflation target of 4 per cent with a tolerance band of +/- 2 per cent for the period beginning April 1, 2026, and ending on March 31, 2031.

The report also said the RBI plans to expand the Central Bank Digital Currency (CBDC) pilot to cover new use cases under DBT schemes and the domestic retail space, while exploring additional pilots on tokenisation of financial assets and widening participant coverage. PTI AA NKD DRR