RBI Grade B Current Affairs — 16 September 2026

The RBI's Monetary Policy Committee unanimously held the repo rate at 6.5 percent with a neutral stance in its first bi-monthly meeting of FY 2025-26, chaired by Governor Sanjay Malhotra. The SDF rate stays at 6.25 percent and the MSF rate and Bank Rate at 6.75 percent. MPC projected FY26 real GDP growth at 6.9 percent, down from FY25's estimated 7.6 percent, and CPI inflation at 4.6 percent, citing West Asia conflict and El Niño as upside inflation risks.

The MPC decision illustrates the core tension in monetary policy: balancing growth support against inflation management. A neutral stance signals that the committee is neither committed to cutting nor hiking rates — it retains optionality. This is distinct from an 'accommodative' stance (biased toward cuts) or a 'withdrawal of accommodation' stance (biased toward hikes).

The LAF corridor remains intact: the repo rate at 6.5% sits between the SDF (floor, 6.25%) and the MSF (ceiling, 6.75%), maintaining a symmetric 25 bps corridor on each side.

The GDP forecast reduction from 7.6% (FY25) to 6.9% (FY26) reflects external headwinds — energy price shocks from the West Asia conflict and supply-chain disruptions — rather than domestic structural weakness. This is a critical distinction for UPSC: the RBI explicitly noted that India's macroeconomic fundamentals are stronger than in previous shock episodes.

On inflation, the 4.6% CPI projection sits above the 4% target midpoint but within the 2–6% tolerance band. El Niño risks to food prices and elevated energy costs explain why the MPC did not cut despite slowing growth — a classic stagflation-adjacent dilemma.

The exchange rate commentary reaffirms RBI's managed float policy: intervention targets volatility, not a specific rupee level. For NABARD aspirants, a stable repo rate means refinancing rates to NABARD from RBI remain anchored, affecting rural credit cost transmission.

Retail inflation in India's third quarter is projected to peak at 6.1 per cent, breaching the RBI's upper tolerance limit of 6 per cent. Analysts now expect the Monetary Policy Committee to respond with two successive 25-basis-point repo rate hikes — one each in October and December — to bring inflation back within the 2–6 per cent target band. This would mark a hawkish pivot after a period of rate stability, directly tightening credit costs across the economy.

India's inflation targeting framework, adopted in 2016 under an amended RBI Act, mandates the MPC to keep CPI inflation at 4 per cent with a tolerance band of ±2 per cent (i.e., 2–6 per cent). Breaching the upper bound of 6 per cent for three consecutive quarters legally triggers a failure of the mandate, requiring the RBI to explain itself to the government in writing.

When inflation breaches the upper limit, the MPC's primary instrument is the repo rate — the rate at which scheduled banks borrow from the RBI under the LAF (Liquidity Adjustment Facility). A rate hike increases the cost of borrowing for banks, which then pass it on to borrowers, suppressing consumption and investment demand, and thereby cooling inflation. This is monetary transmission.

The transmission chain: Repo rate hike → higher bank borrowing costs → higher lending rates (MCLR/EBR) → reduced credit demand → lower consumption and investment → moderated inflation.

For NABARD-focused aspirants, a repo rate hike directly raises the cost of short-term refinancing, including agricultural credit. NABARD's refinancing rates to cooperative banks and RRBs track repo movements, which can squeeze rural credit availability.

The two-hike scenario (Oct + Dec, 25 bps each) would cumulatively add 50 bps, implying a new repo rate of 6.75 per cent if the current rate is 6.25 per cent. The examiner will almost certainly blank out one of these numbers and ask you to fill it in.

The GST Council is considering an amendment to the Integrated Goods and Services Tax Act to treat services provided by Global Capability Centres in India to their overseas parent entities as exports, not domestic supplies. Currently, such services attract GST because the parent and subsidiary share a common legal ownership, disqualifying them as arms-length export transactions. The proposed relief would remove this GST burden, making India a more competitive destination for GCC operations.

Global Capability Centres are subsidiaries set up in India by multinational corporations to deliver back-office, IT, analytics, and shared services to their global parent. Under current IGST rules, a 'supply' between related persons—parent abroad and its Indian subsidiary—is treated as a taxable domestic transaction rather than a zero-rated export, even when the payment is received in foreign currency. This is because the 'place of supply' rules and the related-party definition in the IGST Act pull the transaction inside the GST net.

The proposed amendment would reclassify such services as 'export of services,' making them zero-rated. Zero-rating means the supplier pays no output GST and can claim a refund of all input tax credits, dramatically reducing compliance costs.

This matters conceptually for three reasons. First, it illustrates how the place-of-supply rules in the IGST Act determine whether a transaction is interstate, intrastate, or an export—a core testing area. Second, it shows the distinction between zero-rating and exemption: under zero-rating the supplier gets input credit refund; under exemption they do not. Third, it demonstrates fiscal-economic coordination—the government foregoes GST revenue to attract high-value services investment, a trade-off relevant to UPSC's economic policy questions and RBI's balance-of-payments thinking, since GCC services generate foreign exchange inflows treated as invisible exports in India's current account.

Commerce Minister Piyush Goyal will travel to the United States to attend a G20 trade ministers' meeting and hold bilateral talks with the US Trade Representative. The visit is strategically timed as India pursues key milestones in its ongoing Free Trade Agreement negotiations, including progress on the India-US trade deal. The discussions are expected to cover tariff reductions, market access, and resolving trade irritants that have long complicated bilateral commerce between the two countries.

This visit sits at the intersection of two important frameworks: the G20 Trade and Investment Working Group (TIWG), which coordinates trade policy among the world's largest economies, and India's broader FTA diplomacy.

The G20 does not negotiate binding trade agreements — it is a forum for coordination, not legislation. However, Trade Ministers' meetings within the G20 framework shape agenda-setting and signal political will before formal negotiations. India holds the position of a significant G20 economy (it hosted the G20 Summit in New Delhi in September 2023) and uses these multilateral platforms to advance bilateral objectives simultaneously.

On the India-US trade front, the two countries have a complicated history. The US revoked India's Generalised System of Preferences (GSP) status in 2019, removing duty-free access for ~$5.6 billion worth of Indian exports. Since then, both sides have worked toward a limited trade package ('mini deal') before pursuing a comprehensive FTA. Key sticking points include: US demands for greater market access in dairy and agriculture; Indian concerns about data localisation, e-commerce rules, and pharmaceutical pricing.

The US is India's largest trading partner in goods and services combined. Bilateral trade crossed $190 billion in recent years. An FTA with the US would be structurally different from India's FTAs with ASEAN or the UAE — it would involve deeper commitments on intellectual property, investment, and regulatory standards, making it a strategic as much as an economic document.

The Central Board of Direct Taxes (CBDT), under the Ministry of Finance, has officially notified IIT Roorkee as an approved scientific research institution under Section 35 of the Income Tax Act. This designation allows donors — individuals and companies — to claim weighted tax deductions on contributions made toward scientific research at IIT Roorkee, incentivising private funding for research and development at premier public institutions.

Section 35 of the Income Tax Act provides tax incentives to encourage private funding of scientific research. When the CBDT notifies an institution under this section, contributions made to it qualify for enhanced (weighted) deductions — historically 150% or 175% of the donated amount, though the Finance Act 2020 rationalised most weighted deductions to 100% from AY 2021-22 onward. The notification is issued by CBDT under the Department of Revenue and published in the Official Gazette.

The policy rationale is straightforward: India's gross expenditure on R&D as a percentage of GDP remains low (around 0.65%), far below China (~2.4%) or the US (~3.5%). Notifying elite institutions like IITs under Section 35 is a fiscal tool to bridge this gap by pulling private capital into public research infrastructure.

For exam purposes, note the distinction between Section 35 (scientific research deduction), Section 80G (general charitable donations), and Section 10(23C) (income exemption for educational institutions). CBDT's role here is as the administrative authority that operationalises tax policy — it does not legislate but notifies within the framework Parliament creates. IIT Roorkee, established in 1847 as Thomason College, is India's oldest technical institution and was granted IIT status in 2001.