RBI sees stronger economic growth despite mounting global headwinds

RESILIENCE HOLDS FIRM | Domestic strength cushions rising external uncertainties

Manoj Yadav mumbai

India’s economy appears increasingly well-positioned to withstand a turbulent global landscape, with the Reserve Bank of India (RBI) expressing confidence that robust domestic fundamentals will continue to drive growth even as geopolitical tensions, volatile commodity prices and global trade uncertainties cloud the international outlook.

Presenting the Monetary Policy Committee’s assessment on Wednesday, RBI Governor Sanjay Malhotra said the Indian economy continued to display remarkable resilience, supported by firm domestic demand, healthy investment, expanding services activity and improving export performance. High-frequency indicators, he noted, pointed to sustained economic momentum during the opening quarter of FY27 despite mounting global headwinds.

Reflecting this confidence, the central bank revised its FY27 real GDP growth forecast upwards to 6.7% from 6.6%, projecting quarterly expansion of 7% in the first quarter, 6.4% in the second, 6.5% in the third and 6.8% in the fourth.

Private consumption remained buoyant, while construction activity, capital goods production and bank credit continued to signal resilient investment demand. Early corporate earnings suggested healthy manufacturing activity, services exports maintained strong momentum and merchandise exports showed encouraging signs of recovery. Recent trade agreements and India's continuing efforts to diversify export markets are also expected to strengthen external demand over the medium term.

Malhotra said strong capacity utilisation, healthy credit growth and the government's sustained infrastructure investment would continue to support capital expenditure. Stable employment conditions, the expanding services sector and GST rationalisation are also expected to reinforce urban consumption and strengthen the broader growth cycle. Even so, the Governor cautioned that the global environment remains exceptionally uncertain. Escalating geopolitical conflicts, volatile energy markets, renewed supply-chain disruptions and slowing global demand continue to present significant downside risks to economic activity.

Weather remains another source of uncertainty. An uneven south-west monsoon under El Niño conditions could weigh on agricultural output and rural demand. However, government initiatives promoting crop diversification, climate-resilient farming, short-duration crop varieties, water conservation and improved irrigation are expected to soften any adverse impact.

The RBI retained its FY27 consumer price inflation forecast at 5%, with inflation projected at 4.7% in the second quarter, 5.9% in the third and 5.5% in the fourth. Headline inflation rose to 4.4% in June after remaining below the RBI’s 4% target for sixteen consecutive months. Core inflation remained moderate at 3.9%, while core inflation excluding precious metals stayed between 2.3% and 2.5%, indicating that underlying demand-driven price pressures remain well contained.

The proposed measures to strengthen urban and rural cooperative banks will deepen financial inclusion, improve 

last-mile credit delivery and reinforce the cooperative banking ecosystem across the country.

C S Setty Chairman, State Bank of India

Strong capital buffers, healthy liquidity and better asset quality reinforce banking stability, while proposed reforms for lending rates and cooperative banks will enhance transparency and customer protection.

Ajay Kumar Srivastava MD&CEO, Indian Overseas Bk

The RBI's assessment of resilient growth, a manageable current account deficit and a stable financial system highlights India's strong macroeconomic fundamentals despite global uncertainties.

Prof. Mahendra K. Chouhan President, IMC Chamber of Commerce & Industry

The RBI's upward revision of the GDP growth outlook reflects India's resilience, while a stable repo rate offers businesses policy certainty and supports investment amid continuing global economic uncertainty. 

D. Muthukumaran Group CFO, Essar

The RBI's steady policy stance provides certainty for borrowers and lenders, supporting healthy credit growth while reinforcing confidence in the NBFC sector's resilience and stability.

V. P. Nandakumar, CMD, Manappuram Finance