The Indian economy continues to demonstrate resilience as evident in the robust performance of the agriculture sector and improving consumption amidst challenges posed by rising trade tensions, a Reserve Bank of India study said.
“Domestically, macroeconomic fundamentals remain strong, and economic growth is poised to sustain momentum driven by robust domestic demand, steady investment activity, and ongoing policy-driven infrastructure development along with a pick-up in government spending,” the RBI’s ‘State of the economy’ report said.
Going forward, India’s structural strengths—sound fiscal policies, a well-calibrated monetary framework, and digital transformation initiatives—are expected to provide a strong foundation for long-term sustainable economic growth, the report said. The RBI, which cut the Repo rate by 25 basis points to 6.25 per cent in the February policy review, has projected a growth rate of 6.7 per cent in 2025-26.
The reverberations of a tumultuous external environment, however, are being reflected in sustained foreign portfolio outflows, it said. India’s macroeconomic strength to face these challenges is bolstered by a decline in headline CPI inflation to a seven-month low of 3.6 per cent in February 2025 on account of a further correction in food prices, the study said.
“The resilience of the global economy is being tested by escalating trade tensions and a heightened wave of uncertainty around the scope, timing, and intensity of tariffs. While engendering heightened volatility in global financial markets, these have also caused apprehensions about the slowdown in global growth,” the RBI study said.
The report said policymakers are now walking a tightrope, having to balance the upward strain of rising prices on account of tariffs and currency depreciation, as well as the downward pressure on inflation from economic slowdown, the report said.
While facing challenges from weakening global trade and tariff uncertainty, India’s external sector continues to find support from resilient services exports, which remain less affected by global disruptions, it said.
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The immediate course of the global economy is likely to be shaped by escalating trade tensions, inflationary pressures stemming from tariffs, and attendant financial market volatility, the report said.
The RBI report said the global economy, which entered 2025 on a strong note of resilience, is caught in a storm of escalating trade tensions and a heightened wave of uncertainty around the scope, timing, and intensity of tariffs. “What is more certain, however, is that trade wars and escalating tariffs could have a deleterious impact on growth and fuel inflation, not just in the countries directly involved but for the global economy as a whole. Estimates suggest that a full-blown tariff war could raise the price level by 1.0-1.2 per cent in the US, reduce real GDP growth by 0.6 percentage points in 2025, and leave the U.S. economy persistently 0.3-0.4 per cent smaller in the long run,” it said.
The report said the resilience of the global economy is being tested by escalating trade tensions and a heightened wave of uncertainty around the scope, timing, and intensity of tariffs. While engendering heightened volatility in global financial markets, these have also caused apprehensions about the slowdown in global growth.
Robust kharif production, better rabi sowing coupled with higher reservoir levels and seasonal winter correction in vegetable prices augur well for food inflation, although volatility in commodity prices and weather anomalies remain potential upside risks to the overall inflation outlook, the study said.
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Robust kharif production, better rabi sowing coupled with higher reservoir levels and seasonal winter correction in vegetable prices augur well for food inflation, although volatility in commodity prices and weather anomalies remain potential upside risks to the overall inflation outlook, it said.