India's Economy Stays Strong Despite Global Headwinds, Says RBI
India’s economic landscape continues to demonstrate resilience, driven by strong performance in both industrial and services sectors, despite growing uncertainty in the global environment. According to the Reserve Bank of India’s (RBI) latest monthly bulletin, all key high-frequency indicators suggest sustained momentum in economic activity.
In its 'State of the Economy' section, the central bank underscored the favorable domestic inflation outlook. Headline inflation remained under the RBI’s tolerance threshold of 4 per cent for the fourth consecutive month in May, supporting overall economic stability.
The RBI noted that prevailing financial conditions remain favorable, enabling smooth transmission of recent monetary policy easing. In a bid to spur economic growth, the central bank recently cut the repo rate by 50 basis points, and early signs indicate that this move is beginning to stimulate credit activity in the market.
Global Volatility, Yet Domestic Optimism
The bulletin also addressed global economic uncertainties stemming from escalating trade tensions and geopolitical shocks, particularly the Iran-Israel conflict. These developments have injected volatility into international financial markets. The RBI referenced recent reports from the OECD and the World Bank, which point to a potentially bleak global economic outlook in the medium term.
Despite global headwinds, optimism from temporary tariff suspensions by the US administration kept investor sentiment positive during May and early June. Nonetheless, commodity markets remained volatile. Crude oil prices surged following renewed Middle East tensions, while gold saw increased demand amid risk-averse behavior.
India Leads In Global PMI Rankings
India continues to stand out among global peers in terms of Purchasing Managers' Index (PMI) data. The country recorded the highest expansion in activity among surveyed economies in May, driven in part by a notable rise in new export orders, contrasting with declines observed in other major nations.
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Rural Demand And Agricultural Output Pick Up
On the domestic front, rural consumption is gaining momentum, bolstered by a strong agricultural performance. The RBI highlighted that manufacturing firms reported capacity utilisation above their long-term average, reflecting healthy industrial activity. Moreover, agricultural production saw broad-based growth across major crops during 2024–25.
Forward-looking consumer surveys suggest that sentiment remains steady for the present, with increased optimism about the economic outlook. The RBI concluded that these combined indicators underscore the Indian economy’s robust footing, despite external challenges related to trade and geopolitics.
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