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The Indian economy continues to show resilience despite ongoing global uncertainties and weak external demand, supported by strong macroeconomic fundamentals. RBI analysis points to low inflation, robust balance sheets of banks and corporates, and adequate foreign exchange reserves as key stabilizers. Domestic demand is recovering, with urban consumption reviving and rural demand remaining strong. While the rupee depreciated and foreign portfolio investment outflows persisted, domestic reforms and structural measures have cushioned growth. Food prices showed mixed trends, and gross inward FDI moderated but remained concentrated in major source countries.
The Indian economy has displayed notable resilience, supported by solid macroeconomic fundamentals, even as global uncertainties remain high and external demand is weak, according to a detailed article in the Reserve Bank of India's October Bulletin. Analysts highlighted that low inflation, healthy balance sheets of banks and corporates, adequate foreign exchange reserves, and a credible monetary and fiscal framework are key factors sustaining economic stability. Advertisement
Globally, uncertainty has increased, particularly in the US, where trade and economic policy unpredictability rose in September. Investor sentiment softened in October due to renewed US-China trade tensions and an extended US government shutdown, although global growth has broadly held up.
In India, high-frequency indicators show signs of revival in urban demand, while rural consumption remains strong. The RBI noted that although the Indian economy is not immune to global headwinds, domestic factors continue to support growth. Headline consumer price index (CPI) inflation moderated sharply in September, recording the lowest level since June 2017.
Food prices in October reflected a mixed pattern. Cereal prices increased, while pulses such as gram dal, tur/arhar dal, and moong dal showed moderation. Among edible oils, mustard, sunflower, and palm oils became firmer, whereas groundnut oil prices eased. Key vegetables, including tomatoes, onions, and potatoes, generally saw price softening, with the sharpest decline observed in tomato prices.
The RBI bulletin highlighted that domestic structural reforms have helped partially offset the drag on growth caused by weaker external demand. The Monetary Policy Committee (MPC) observed that the growth outlook remains resilient, supported by domestic drivers, and that current macroeconomic conditions provide scope for policy measures to further bolster growth.
On the currency front, the rupee depreciated against the US dollar in September due to heightened global uncertainties, trade tensions, and continued foreign portfolio investment outflows. The fall in the real effective exchange rate was largely driven by depreciation in the nominal effective exchange rate. Net foreign portfolio investment remained negative for the third consecutive month, primarily due to equity outflows amid concerns over US tariff measures and steep increases in H-1B visa fees.
Gross inward foreign direct investment (FDI) moderated in August, with Singapore, Cayman Islands, UAE, the Netherlands, and the US accounting for more than three-fourths of total inflows. Manufacturing, computer services, construction, and financial services were the leading recipient sectors. Net FDI turned negative due to a combination of moderated inflows and increased repatriation.
The RBI clarified that the opinions expressed in the bulletin reflect the authors views and do not necessarily represent the official stance of the bank.
Source PTI
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