India Economy Shows Resilience Amid Global Uncertainty, Says RBI
| 2025-06-26
RBI
India’s economy remains resilient despite global trade and geopolitical tensions, with strong growth, stable inflation, and rising investment, says RBI report.
India’s economy has demonstrated strong resilience in the face of mounting global uncertainties, according to the Reserve Bank of India’s (RBI) latest monthly bulletin. In its “State of the Economy” report for June 2025, the central bank highlights robust economic momentum across industrial, agricultural, and services sectors, underpinned by stable inflation and a supportive policy environment.
The bulletin, released by the RBI on Wednesday, credits India’s strong performance to record crop production, steady investment, and a healthy labour market. It also urges banks to pass on the benefits of the recent 50 basis point policy rate cut to borrowers, citing conducive financial conditions for credit growth.
Stable domestic outlook amid global turmoil
The RBI noted that despite an increasingly fragile global economy—strained by protectionist trade policies and rising geopolitical tensions such as the Iran-Israel conflict—India continues to outperform. According to the central bank, “various high-frequency indicators for May 2025 point towards resilient economic activity in India across the industrial and services sectors.”
The bulletin described the international economic environment as being in a “state of flux,” with reports from multilateral institutions including the Organisation for Economic Co-operation and Development (OECD) and the World Bank warning of weakened global prospects in the medium term.
Nevertheless, India has managed to register the highest growth rate among major global economies for the fourth quarter of the 2024–25 financial year. The pickup in growth, the RBI said, was driven by “strong fixed investment, high manufacturing capacity utilisation, and buoyant services activity supported by record hiring.”
Inflation under control, policy support continues
India’s headline inflation remained below the RBI’s upper tolerance level for a fourth consecutive month in May. The central bank attributed this to a record agricultural output during the 2024–25 crop season, which has helped bring down food prices.
“Underlying inflationary pressures remain muted,” the RBI noted, citing the stability in core inflation when excluding volatile items like gold and silver. The bulletin also observed that “financial conditions are conducive” to the transmission of the recent rate cut into lower lending rates, encouraging banks to reduce loan costs to stimulate credit demand.
Market volatility and global risks
While domestic economic indicators remain broadly positive, the bulletin acknowledged increasing risks from global financial markets. Volatility has returned amid the escalation of conflict in West Asia and concerns about the fiscal outlook in the United States.
India’s equity markets recorded modest gains during May and early June but experienced a brief sell-off before rebounding strongly on 20 June. The RBI cautioned that widening credit spreads in emerging markets and rising term premia in global bond markets could pose risks to financial stability.
Consumer confidence and fiscal planning bolster outlook
Forward-looking surveys cited in the bulletin suggest steady consumer sentiment and growing optimism about future prospects. This, combined with government plans to increase capital expenditure to 3% of GDP in the 2025–26 financial year, reflects a continued emphasis on quality growth.
The Indian Meteorological Department’s (IMD) forecast of an above-average monsoon season is also expected to strengthen rural demand and further support agricultural productivity.
Context: Navigating a fragile global economy
India’s resilience stands in contrast to growing concern over global economic fragmentation, fuelled by protectionist measures and armed conflict. While many economies face the prospect of stagnation, India’s relatively stable macroeconomic environment and proactive policy stance have helped shield it from the worst effects of external shocks.
However, challenges remain. The RBI cautioned that slow credit growth, tepid urban consumption, rising unemployment, and weak state finances could weigh on the outlook if not addressed in a timely manner.
Despite these concerns, the central bank maintains a cautiously optimistic view. “The Indian economy continues to navigate the global headwinds with confidence, supported by domestic demand and strategic policy interventions,” the report concluded.
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