Indian economy resilient amid global uncertainties, says RBI

The Reserve Bank of India (RBI) highlighted the resilience of the Indian economy in its latest 'State of the Economy' report, despite global uncertainties. External factors such as geopolitical tensions, US tariffs, and trade uncertainties continue to pose risks to global trade and the growth-inflation outlook. However, strong domestic demand, a recovery in manufacturing and services activity, improved monsoon conditions, and a rebound in capital inflows are bolstering India's growth momentum.

The Monetary Policy Committee (MPC) decided to keep the key repo rate unchanged at 5.25% during its meeting on August 5. The MPC also increased its growth forecast for FY27 to 6.7% from 6.6% and reduced its inflation projection to 5% from 5.1%. However, they noted that headline inflation could peak at 5.9% in Q3 2026-27, potentially leading to a case for a rate hike during the year.

The report noted that the domestic economy has shown notable resilience to ongoing global headwinds, with buoyant domestic demand and rising manufacturing and services activity. The southwest monsoon picked up in July after a deficit in June, aiding kharif sowing and mitigating risks to the agriculture sector. Core inflation remained stable, with headline CPI inflation rising fractionally due to food inflation.

Financial conditions are characterized by high credit growth, comfortable liquidity, and softer G-sec yields supported by a rebound in capital inflows.

Despite global uncertainties, the economy's momentum continued into July 2026, with high-frequency indicators reflecting sustained manufacturing and services activity, strong merchandise exports and imports, and a rebound in petroleum product consumption. The services sector, including vehicle and tractor sales, also displayed resilience.

Merchandise exports and imports grew strongly in July 2026, with exports reaching a four-month high. However, the merchandise trade deficit widened in July, driven by an increase in electronic goods. The monsoon activity in July supported kharif sowing, and the government announced an Open Market Sales Scheme to augment foodgrain supply.