Indian Economy Overview

The Indian economy exhibits resilience with strong agricultural performance and improving consumption despite global trade tensions, according to a Reserve Bank of India (RBI) study.

Macroeconomic Fundamentals

• Economic Growth: Growth is expected to sustain due to robust domestic demand, steady investment, infrastructure development, and increased government spending.
• Structural Strengths: India's sound fiscal policies, monetary framework, and digital initiatives are seen as a foundation for long-term growth.
• Growth Projection: The RBI has projected a growth rate of 6.7% for 2025-26, following a Repo rate cut to 6.25%.

External Challenges and Domestic Resilience

• Trade Tensions Impact: Rising trade tensions and tariff uncertainties contribute to foreign portfolio outflows and global market volatility.
• Inflation Trends: Headline CPI inflation has declined to a seven-month low of 3.6% due to lower food prices.
• Services Exports: India's external sector remains resilient, bolstered by strong services exports despite global disruptions.

Global Economic Context

• Trade Wars: Escalating trade tensions pose risks of higher inflation and reduced growth globally, with potential long-term impacts on GDP.
• Potential Impact: A full-blown tariff war could increase US price levels by 1.0-1.2% and reduce GDP growth by 0.6 percentage points in 2025.
• Inflation Outlook: While robust agricultural production supports food inflation, volatility in commodity prices and weather anomalies are risk factors.

Conclusion

The RBI highlights the balance policymakers must maintain amid rising prices, currency depreciation, and economic slowdown, while global economic resilience is tested by ongoing trade tensions and uncertainties.