Despite heightened global uncertainties and geopolitical shocks, the Indian economy has emerged as a resilient force, supported by strong domestic fundamentals and ongoing structural reforms, according to the Reserve Bank of India’s (RBI) latest monthly bulletin. While it cautioned that India is not immune to external turbulence, the central bank highlighted the country’s ability to absorb shocks and sustain growth.

The RBI also revised its real GDP growth forecast for 2025-26 upward to 6.8%, demonstrating confidence in the domestic economic outlook despite weakening global demand.

Global Headwinds Still a Concern

The bulletin cited rising global risks, including intensifying trade tensions, geopolitical uncertainties, and sluggish external demand—all of which could test macroeconomic stability. “Uncertainty in the global economy poses significant challenges to the wider macroeconomic picture, and the Indian economy cannot remain insulated,” the RBI noted.

In particular, the report flagged the impact of punitive tariffs imposed by the Donald Trump administration on Indian exports, pointing to a sharp decline in merchandise exports to the US in September as a direct result of tariff pressures.

Domestic Drivers Keep Growth Intact

Despite these external pressures, the RBI pointed to a series of factors underlining India’s economic momentum:

• Softening Inflation: Headline retail inflation (CPI) has eased to multi-year lows, offering policymakers the room to support economic activity.
• Sound Corporate and Banking Health: Improved balance sheets in the corporate and financial sectors have strengthened systemic resilience.
• Widespread Activity in Services and Agriculture: While industrial growth remains modest, indicators from agriculture, services, GST collections, and digital payments all reflect stability.
• Continued Structural Reforms: Measures such as tax rationalisation, capacity expansion, and rural support schemes are helping counterbalance the drag from a weakening global environment.

The bulletin noted that the current macro environment offers “space for further supporting growth”.

Forecast Lifted but Caution Remains

In line with its confidence in domestic economic drivers, the RBI revised its growth estimate for FY 2025-26 to 6.8%, up from earlier projections. However, it tempered its optimism, warning that external risks remain “evenly balanced” and will require close scrutiny.

Even as it downplayed the immediate impact of higher tariffs in the US, the central bank acknowledged that merchandise trade remains exposed to policy shocks from major trading partners.

Key Challenges to Watch

The RBI highlighted four key risk areas:

• Trade and Tariff Uncertainty: With global trading partners imposing higher tariffs and external demand slowing, export growth could come under further pressure.
• Modest Industrial Growth: While services and agricultural sectors have shown resilience, manufacturing remains patchy, pointing to possible structural bottlenecks.
• Spillover from Global Markets: Fluctuations in global commodity prices, financial volatility, and supply chain disruptions may increasingly influence domestic conditions.
• Investment Revival Needed: Sustaining growth will require broader investment revival, especially in sectors where capital expenditure remains uneven.

What This Means for Policy and Business

For policymakers, the bulletin signals that there is still room to bolster growth — thanks to soft inflation, stable finance, and resilient demand. The RBI recently held the repo rate steady at 5.50% with a neutral stance, leaving open the possibility of rate cuts should growth need further support.

For investors and businesses, the outlook is cautiously optimistic. Sectors driven by domestic consumption, services and rural demand are well-positioned, while export-heavy industries may need to brace for shifting global trade dynamics.

Conclusion

Amid escalating global macroeconomic tensions, India’s economy continues to display an impressive degree of resilience, driven by strong domestic demand, healthy corporate and banking systems, and the momentum of structural reforms. The RBI’s upward revision of its growth forecast to 6.8% underscores India’s ability to withstand global headwinds. However, sustaining this resilience will require continued investment in capacity, vigilance against global shocks, and a steady hand on reforms. The road ahead looks promising—but cautious navigation will be key.