India's economic trajectory for 2025-26 is projected to remain robust, buoyed by a resurgence in consumption and sustained government capital expenditure, according to the latest Annual Report 2024-25 from the Reserve Bank of India (RBI). A crucial element in this positive outlook, and central to the fight against inflation, is the anticipated strong performance of the agriculture sector, driven by favorable monsoons and a slew of new government initiatives.
The RBI's report highlights that the prospects for the agriculture sector appear "favourable in 2025-26 on the back of expected above normal south-west monsoon and several productivity-enhancing government policies." This optimistic forecast is a significant factor in the RBI's projection of consumer price index (CPI) inflation at 4.0 per cent for the fiscal year, with risks "evenly balanced."
The Union Budget 2025-26, as noted in the RBI report, has unveiled several new initiatives aimed at boosting the agricultural landscape. These include the Prime Minister Dhan-Dhaanya Krishi Yojana, a comprehensive program designed to enhance agricultural productivity and promote sustainable practices in low-productivity districts. Further strengthening food security and domestic production are the Mission for Aatmanirbharta (self-reliance) in pulses, a program to promote the production, efficient supply, and processing of vegetables and fruits, and the launch of the National Mission on High Yielding Seeds. The report also mentions the Mission for Cotton Productivity and a significant increase in the credit limit under the modified interest subvention scheme for Kisan Credit Card (KCC) loans, from ₹3 lakh to ₹5 lakh.
Beyond productivity, the RBI emphasizes efforts towards promoting sustainable farming, including a plan to cover one crore farmers under the National Mission on Natural Farming. This initiative, the report states, aims to "enhance the climate resilience of the agriculture sector as well as soil health and biodiversity," addressing a critical long-term challenge.
Despite these promising domestic developments, the RBI cautions against external pressures that could impact the inflation trajectory. The report notes that "uncertainty about global trade post-protectionist measures, protracted geopolitical tensions and global financial market volatility pose downside risks to the growth outlook and upside risks to the inflation outlook." Specifically regarding inflation, it adds that "the increasing incidence of climate shocks as seen in recent years, however, warrants careful monitoring of food price outlook. Prolonged geopolitical uncertainties, excessive global financial market volatilities, trade fragmentation and restrictive trade policies pose upward risks to the inflation trajectory."
In response to a moderating inflation trend, which saw headline inflation ease to 4.6 per cent in 2024-25, the RBI's Monetary Policy Committee (MPC) in April 2025 unanimously voted to reduce the policy repo rate by 25 basis points to 6.0 per cent and shifted its stance from neutral to accommodative. This move, as per the report, signals "greater confidence about a durable alignment of headline inflation with the target of 4.0 per cent over a 12-month horizon."
The RBI's Annual Report underscores that while the Indian economy exhibits strong fundamentals, including healthy balance sheets of banks and corporates and a resilient services sector, the prudent management of agricultural output and careful monitoring of global developments will be paramount in maintaining both growth momentum and price stability in the coming fiscal year.