Highlights of RBI Annual Report 2025-26 – Chapter 1 to 3

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the first article in the series. 

Legal framework for publication of Annual Report by the RBI

Report of the Central Board of Directors on the working of RBI for the year is submitted to the Central Government in terms of Section 53(2) of the RBI Act, 1934.

The letter of transmittal is signed by the RBI Governor and addressed to the Finance Secretary, Ministry of Finance, Government of India.

Documents submitted by the RBI to the Central Government

In pursuance of Section 53(2) of the RBI Act, 1934, the following documents have been submitted to the Central Government –

• A copy of the Annual Accounts for the year ended March 31, 2026 certified by the RBI’s Auditors and signed by Chief General Manager-in-charge, all the Deputy Governors and Governor.
• 2 copies of the Annual Report of the Central Board on the working of the RBI during the year ended March 31, 2026.

Chapter 1 – Assessment and Prospects

• Global growth increased to 3.4% in 2025 from 3.3% in 2024.
• Global growth is projected at 3.1% in 2026, below its long-term average (2000-19) of 3.7%.
• Global inflation eased to 4.1% in 2025 from 5.8% in 2024.
• Global inflation is projected at 4.4% in 2026.
• Current Account Deficit (CAD) was 1.1% of Gross Domestic Product (GDP) during April-December 2025 as compared to 1.3% of GDP during the corresponding period in the previous year.
• India’s foreign exchange reserves (US$ 691.1 billion as at end-March 2026) provided import cover of about 11 months and external debt cover of 90.3%.
• Unified Payments Interface (UPI) volume increased by 30% (42% in 2024-25), surpassing 200 billion transactions.
• The RBI is exploring the full-scale implementation of the Digital Payments Intelligence Platform (DPIP), and introduction of the ‘switch-on’ and ‘switch-off’ facility for all digital payment modes.
• To reinforce India’s manufacturing ambitions, the Union Budget 2026-27 has earmarked 7 strategic and frontier sectors - electronics, semiconductors, biopharma, rare earths, chemicals, textiles, and capital goods - for a focused policy push.
• The Government has set up an Economic Stabilisation Fund (ESF) to provide fiscal space against global headwinds. 
• The Union Budget 2026-27 announced tax holiday and safe harbour for foreign companies for developing data centres in India, and infrastructural investments to the tune of US$ 250 billion committed till 2047 in the India AI Summit 2026.
• Tax holiday has been announced till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India. 
• Safe harbour of minimum 15% on cost has been proposed in case the foreign company is a related entity as against the earlier practice of transfer pricing based on arm’s length principle, which was prone to disputes.
• The Government launched ‘Bharat Gen’, India’s first government-funded sovereign multilingual and multimodal large language model (LLM), aimed at developing AI systems tailored to Indian languages, governance and public service applications.
• In March 2024, the government had launched the IndiaAI mission with an outlay of ₹10,372 crore. More than 38,000 graphics processing units (GPUs) for common compute facility were onboarded.
• India’s cumulative private investment in AI reached around US$ 11 billion during 2013-2024. 
• Google has announced the establishment of an AI Hub in Vishakhapatnam with an investment of around US$ 15 billion and Tata Group has announced an investment of US$ 11 billion for an AI innovation city in Maharashtra.
• India ranked 3rd for AI competitiveness and ecosystem vibrancy.
• According to fDi Markets, India ranked 5th in global greenfield announcements in AI-related sub-sectors such as data processing, and semiconductors and allied components in 2024-25. 
• India ranked 3rd with installed renewable energy capacity exceeding 250 gigawatts (GW). 283.5 GW of capacity from non-fossil fuel sources has been installed as on March 31, 2026.
• Foreign Direct Investment (FDI) norms in the space sector were liberalised by permitting up to 100% FDI in satellite manufacturing and components. 
• Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources) is a multilingual tool to integrate digital agricultural infrastructure with AI-based advisory systems to enable improved decision-making at the farm-level and enhance farm productivity.
• Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology, and Innovation) scheme with an outlay of ₹10,000 crore over 5 years aims to strengthen India’s ecosystem for production of biologics and biosimilars.

Chapter 2 – Economic Review

• India’s GDP growth was 7.6% in 2025-26, up from 7.1% in the previous year.
• GDP growth for 2026-27 is projected at 6.9%.
• Headline Consumer price index (CPI) inflation moderated to 2.1% in 2025-26 from 4.6% in the previous year.
• CPI inflation for 2026-27 is projected at 4.6%.
• New CPI series with base year 2024=100
• On February 12, 2026, the Ministry of Statistics and Programme Implementation (MoSPI), Government of India, released a new CPI series with base year 2024=100. 
• The revised structure follows the United Nation’s Classification of Individual Consumption According to Purpose (COICOP) 2018, with the weights being derived from the Household Consumption Expenditure Survey (HCES) 2023-24. 
• Under the new structure, the erstwhile 6 groups as per the CPI base year 2012=100 have now been reconstituted into 12 divisions. 
• The weight of ‘food and beverages’ declined from 45.9% to 36.8% in the new series, reflecting evolving consumption patterns of consumers towards more non-food items.
• Prepared meals reclassified to a new division ‘restaurants and accommodation services’. 
• ‘Housing’ and ‘fuel and light’ groups have been clubbed together into ‘housing, water, electricity, gas and other fuels division’.
• ‘Transport and communication’ group has been segregated into ‘transport’ and ‘information and communication’ divisions.
• Core inflation i.e., CPI excluding food and fuel, averaged 4.3% during April-December 2025, compared with 3.4% in the corresponding period a year ago. 
• Under the revised series (2024=100), core inflation was 3.7% during January to March 2026. 
• The inflation in gold and silver accounted for nearly half of the core inflation in the second half of 2025-26.
• Wholesale price index (WPI) inflation moderated to 0.7% during 2025-26 from 2.3% a year ago.
• The overall impact of US tariffs remained muted with net exports exerting a modest drag of 0.1% on growth.
• The central government achieved its fiscal consolidation goal of reducing the gross fiscal deficit (GFD) below 4.5% of GDP by 2025-26. The GFD stood at 4.4% of GDP in 2025-26 (Revised Estimates), lower than 4.8% in 2024-25. 
• GFD is projected at 4.3% of GDP in 2026-27.
• China became the largest trading partner of India overtaking the US in 2025-26.
• The share of Russia and Iraq in India’s crude oil imports declined during the year, while that of Saudi Arabia, the UAE and the US increased.
• India signed a Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom, Comprehensive Economic and Partnership Agreement (CEPA) with Oman and India-New Zealand Free Trade Agreement (FTA). The FTA negotiations with the European Union were also concluded.
• India ranked 2nd in terms of greenfield FDI announcements during 2025-26, after the US, according to fDi Markets. 
• Indian Rupee (INR) depreciated by 9.9% during 2025-26.
• Remittances by Indians working overseas grew by 10.1% during April-December 2025 (16.2% during April-December 2024).
• The RBI’s balance sheet expanded during the year, primarily driven by revaluation gains from elevated gold prices and rupee depreciation. As at end-March 2026, the RBI’s balance sheet size stood at 26.4% of GDP (23.7% a year ago).
• Public sector banks registered higher credit growth than that of private sector banks for the second consecutive year resulting in rise in public sector banks’ share in total credit.

Chapter 3 – Monetary Policy Operations

• Monetary Policy Committee (MPC) continued with its easing cycle initiated in February 2025 by reducing the policy repo rate cumulatively by 100 bps in 2025-26 lowering the repo rate to 5.25% – 
• 25 bps cut in April 2025
• 50 bps reduction in June 2025
• 25 bps cut in December 2025
• With 25 bps cut in February 2025, the cumulative reduction in the policy repo rate between February and December 2025 was 125 bps.
• The policy stance shifted from neutral to accommodative in April 2025, before reverting to neutral in June 2025.
• Cash reserve ratio (CRR) was reduced by 100 bps to 3% of net demand and time liabilities (NDTL) in 4 tranches of 25 bps each with effect from the fortnights beginning September 6, October 4, November 1, and November 29, 2025.
• Flexible Inflation Targeting (FIT) Framework –
• FIT framework was adopted in May 2016, implemented through amendments to the RBI Act, 1934 - with the insertion of Chapter III-F:Monetary Policy. 
• Section 45ZA of the RBI Act, 1934 mandates that the central government, in consultation with the RBI, determine the inflation target in terms of CPI every 5 years. 
• On August 5, 2016, the inflation target of 4% based on headline CPI with a tolerance band of 2-6% was notified for the period up to March 31, 2021. 
• At the time of the first review, the RBI had published the Report on Currency and Finance 2020-21 with the theme, ‘Reviewing the Monetary Policy Framework’, which discussed various aspects of the FIT regime in India during the first 5 years of its operationalisation, i.e., 2016-2021. 
• The inflation target was reviewed in March 2021 and retained for a further 5-year period up to March 31, 2026.
• The RBI initiated a public consultation process for the second review with the release of a Discussion Paper and sought stakeholder feedback on – (a) choice of headline versus core inflation as the nominal anchor; (b) appropriateness of the 4% target; (c) adequacy of the ± 2% tolerance band; and (d) relative merits of point versus range targeting.
• On March 25, 2026, the central government retained the CPI headline inflation target at 4% with the tolerance level of 2-6% for the period April 1, 2026 to March 31, 2031.
• The weighted average call rate (WACR), on average, remained 7 bps below the policy repo rate in 2025-26 (6 bps above the repo rate during the previous year).
• The external benchmark-based lending rates (EBLR) system was introduced in October 2019 for loan pricing in housing, vehicle, education, personal loans and micro, small and medium enterprise (MSME) loans. 
• The proportion of EBLR linked loans in total outstanding floating rate loans increased, with the concomitant fall in marginal cost of funds-based lending rate (MCLR) linked loans.
• The decline in the weighted average lending rate (WALR) on both fresh and outstanding loans was highest in the case of foreign banks, reflecting a higher share of EBLR linked loans. This decline was higher for private banks compared to public sector banks.
• The liquidity management framework was reviewed –
• WACR was retained as the operating target of monetary policy.
• Retained the symmetric policy corridor of 50 bps around the policy repo rate. 
• 14-day variable rate repo and reverse repo auctions were discontinued as the main liquidity management operations. 
• Transient liquidity was sought to be managed primarily through variable rate repo and reverse repo auctions of 7-day and other tenors (from overnight to 14-days).
• Liquidity conditions remained in surplus, with the average daily net absorption under the liquidity adjustment facility (LAF) rising sharply to ₹1.86 lakh crore.

References

Reserve Bank of India. (2026, May 29). 'RBI Annual Report 2025-26'. Retrieved from https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?year=2026

Follow at - Telegram   Instagram   LinkedIn   X   Facebook