1 week ago
Indian economy shows resilience despite global trade and geopolitical uncertainties
The Reserve Bank of India says India’s economy is holding up despite problems around the world.
Wars, trade disagreements and new US tariffs could make global business harder.
However, people in India are still spending, and factories and service companies are becoming more active.
Better monsoon rains helped farmers plant more crops.
Money coming into India from foreign investors also improved.
The RBI kept its main interest rate at 5.25%.
It expects the economy to grow by 6.7% in FY27 and expects inflation to be 5%.
The RBI also warned that inflation could rise later, so an interest-rate increase might become necessary.
India’s trade deficit grew in July, showing that some risks remain.
The Reserve Bank of India said domestic demand and economic activity remain resilient despite global uncertainty.
Manufacturing and services activity strengthened, while industrial production recorded its strongest growth in nearly two years in June.
The RBI’s Monetary Policy Committee kept the repo rate unchanged at 5.25% on August 5.
The RBI raised its FY27 growth forecast to 6.7% and lowered its inflation projection to 5%.
Geopolitical tensions, US tariffs, trade uncertainty and a widening merchandise trade deficit remain risks.
- Who
- The Reserve Bank of India and its Monetary Policy Committee, drawing on analysis by RBI researchers and economists.
- What
- The RBI assessed India’s economic resilience, growth prospects, inflation risks and exposure to global uncertainty.
- Where
- India, amid global developments involving West Asia, the United States and international trade.
- When
- The assessment covered developments through July and August; the MPC met on August 5 and reported FY27 projections.
- Why
- Buoyant domestic demand, stronger manufacturing and services, improved monsoon conditions and rebounding capital inflows are supporting growth, while geopolitical tensions, tariffs and trade uncertainty pose risks.
Domestic Resilience
External and Inflation Risks
Economic outlook
Domestic Resilience
The RBI said robust domestic demand, rising manufacturing and services activity, improved monsoon conditions and stronger capital inflows are cushioning India’s economy.
External and Inflation Risks
Geopolitical tensions, renewed US tariffs and continuing trade uncertainty could weaken global trade and affect India’s growth-inflation outlook.
Monetary policy
Domestic Resilience
The MPC kept the repo rate unchanged at 5.25%, while the RBI slightly raised its FY27 growth forecast and lowered its inflation projection.
External and Inflation Risks
MPC members warned that a rate increase may become necessary during the year if headline inflation rises toward 5.9% in Q3 2026-27.
External sector
Domestic Resilience
Foreign capital inflows rebounded, and merchandise exports and imports recorded strong growth in July.
External and Inflation Risks
The merchandise trade deficit widened in July, partly because of a larger deficit in electronic goods.
Key facts
- Repo rate
- 5.25%, unchanged by the Monetary Policy Committee on August 5.
- FY27 growth forecast
- Raised marginally to 6.7% from 6.6%.
- Inflation projection
- Lowered to 5% from 5.1%.
- Industrial production
- Strengthened sharply in June, reaching its strongest growth in nearly two years.
- Monsoon and agriculture
- July rainfall recovery brought kharif sowing closer to normal acreage.
- Trade balance
- The merchandise trade deficit widened in July, including because of a larger electronic-goods deficit.
- Inflation risk
- The MPC minutes said a case for a rate hike could emerge if inflation peaks near 5.9% in Q3 2026-27.
Quotes
RBI researchers and economists
Authors of the RBI’s State of the Economy article
“The global economy is confronting a fragile geopolitical environment and continuing trade-related uncertainties. Nevertheless, the domestic economy has demonstrated notable resilience to the ongoing global headwinds, characterised by buoyant domestic demand, and rising manufacturing and services activity.”
indianexpress.com
“The south-west monsoon picked up in July after recording a deficit in June. While headline CPI inflation rose fractionally, reflecting food inflation, core inflation remained stable.”
indianexpress.com
Sources
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