Despite global uncertainties and rising tariff risks, the Indian economy shows strong resilience, supported by solid macroeconomic fundamentals, according to the Reserve Bank of India’s latest bulletin.
India’s Economic Resilience Holds Strong
The Reserve Bank of India’s July monthly bulletin features an article titled ‘State of the Economy’, highlighting India’s robust economic performance. It notes that domestic economic activity remained strong in June.
High-frequency indicators point to promising prospects for the kharif agricultural season, coupled with continued strong momentum in the services sector. Rural demand has remained resilient, complemented by a recovery in urban economic activity.
Key Indicators Point to Stability and Growth
The all-India unemployment rate held steady at 5.6% in June, with rural areas outperforming urban counterparts. On the fiscal front, total government expenditure grew by 19.7% year-on-year during April-May 2025, accounting for 14.7% of the Budget Estimates for FY26.
Notably, capital expenditure saw robust growth in the first two months of the current fiscal year, reaching 19.7% of the budgeted capital expenditure. This indicates a proactive “front-loading” of spending by the Central government.
Trade Performance and Market Mood
India’s merchandise trade deficit narrowed in June 2025, primarily due to a contraction in both oil and non-oil trade deficits. Domestic financial market sentiments improved in the latter half of June, buoyed by de-escalating geopolitical tensions in the Middle East, optimism around trade deals, and the Reserve Bank’s easing of infrastructure financing norms.
However, the first half of July saw domestic markets trade cautiously. Investor sentiment was affected by ongoing uncertainty surrounding a potential India-US trade agreement and mixed corporate earnings results for the first quarter of FY25.
Inflation Under Control
India’s headline inflation, measured by changes in the Consumer Price Index (CPI), declined to 2.1% in June 2025. This marks the lowest inflation rate since January 2019 and keeps retail inflation below the 4% target for the fifth consecutive month.
The RBI article suggests that easing inflation, coupled with proactive government spending and favorable financial conditions, should continue to support aggregate demand in the economy.
Navigating Global Tariff Risks
The RBI bulletin raises concerns about global trade policies, noting that average trade tariff rates are set to reach levels unseen since the 1930s. The risk of new high tariffs looms large for additional sectors, creating considerable headwinds for global economic prospects.
Despite these uncertainties, financial markets appear to have largely absorbed the trade policy risks. This might reflect optimism that upcoming trade deals will be less disruptive to the global economy, though the underpricing of macroeconomic risk remains a concern.
India’s Path to Stronger Growth
Amidst rising trade uncertainties and geo-economic fragmentation, the RBI emphasizes that building more resilient trade partnerships presents a strategic opportunity for India. This approach could deepen India’s integration with global value chains.
Furthermore, measures to accelerate domestic investment in infrastructure and structural reforms aimed at improving competitiveness and productivity are crucial. These steps will help build resilience while supporting India’s growth momentum.
- The Indian economy shows strong resilience despite global uncertainties and high tariff risks.
- Domestic economic indicators, including services, agriculture, and government spending, remain robust.
- Global trade tensions and the risk of rising tariffs pose significant challenges, though markets remain cautiously optimistic.
The bulletin underscores the importance of strategic policy choices to ensure India maintains its growth trajectory in an evolving global landscape.
