(HT)
Despite rising global risks from trade tensions and geopolitical conflicts, India’s economy remains resilient, with key sectors maintaining momentum, the Reserve Bank of India (RBI) said in its latest State of the Economy report released on Wednesday.
The central bank, however, warned that prolonged trade policy uncertainty and increasing protectionism could leave a lasting impact on the global economy.
“High-frequency indicators for May 2025 point towards resilient economic activity in India across the industrial and services sectors,” the RBI said, highlighting the economy’s relative stability amid external headwinds.
The report, published as part of the RBI’s monthly bulletin, flagged deepening geopolitical tensions as a key downside risk to already fragile global growth.
The RBI warned that a further deterioration in the global environment could undermine trade flows and financial stability.
“The intensifying geopolitical tensions too may further debilitate the already weakened growth impulses,” it added.
It said global trade policy, especially the expected expiry of a temporary US reciprocal tariff truce in July will be a key factor to watch.
The RBI said that overall economic activity remained robust in May 2025, with key high-frequency indicators like e-way bills, goods and services tax (GST) revenue, toll collections, and digital payments showing strong growth.
On agriculture, it said that high-frequency indicators for the ongoing kharif season point to largely favourable conditions for good sowing, though uncertainties remain on the distribution of monsoon.
“High-frequency food price data for June so far (up to 20 June 2025) shows a moderation in prices of pulses while prices of cereals have risen marginally,” it said.
Meanwhile, gross inward foreign direct investment (FDI) amounted to $8.8 billion in April 2025, higher than $5.9 billion in March 2025 and $7.2 billion in April 2024, the RBI said, adding that manufacturing and business services accounted for nearly half of the gross FDI inflows in May
The bank added that geopolitical developments will also play a major role in shaping medium-term growth for India and the world. It cited ongoing conflict between Israel and Iran, along with the resulting unrest in West Asia, as adding to the global uncertainty.
“Since 13 June… uncertainty once again loomed large over the macroeconomic landscape in the wake of renewed geopolitical turbulence in the Middle East,” it added.
The RBI report said that the decision of the RBI’s Monetary Policy Committee (MPC) to reduce the policy repo rate by 50 basis points to 5.5% earlier in June, will stimulate private consumption and investment.
“A likely undershoot of inflation to below the target rate, at the margin, during the current financial year and evidence of further anchoring of inflation expectations provided the MPC with the policy space to decisively focus on growth by front-loading the rate cut,” it added.
