India’s Near Term Outlook Clouded By Supply Side Pressures Says RBI Bulletin
The RBI warned that even as headline inflation remains firmly within the tolerance band, the pass through to domestic prices needs to be monitored
By : Falaknaaz Syed
Update: 2026-05-22 17:38 GMT
Mumbai: India’s near-term economic outlook is somewhat clouded by supply side pressures due to the ongoing war in West Asia. Nevertheless, robust services exports, positive net FDI flows, foreign exchange reserve buffers and a number of proactive policy measures undertaken by the government and the Reserve Bank are likely to cushion the Indian economy against external headwinds, said the Reserve Bank of India (RBI) in the May Bulletin released on Friday.
The central bank in an article State of the Economy in the Bulletin said that global economic conditions remained fragile, shaped by heightened geopolitical tensions, elevated energy costs and persistent uncertainty surrounding the growth and inflation outlook.
“The conflict in West Asia continued to exert pressure on commodity markets, global trade flows and supply chains, contributing to the volatility in financial markets. India has entered this phase from a position of macro economic strength. Domestic demand continues to be the key driver of growth,” said the RBI.
The RBI warned that even as headline inflation remains firmly within the tolerance band, the pass through to domestic prices needs to be monitored.
So far, the domestic economic activity has exhibited resilience in April with industrial and services sectors maintaining strength across several segments, even as the global economy continued to be shadowed by uncertainties in West Asia.
In agriculture, summer sowing progressed well, supported by above normal pre-monsoon rainfall and comfortable reservoir levels. CPI inflation rose to 3.5 per cent in April, driven mainly by food inflation, while core inflation remained steady. In March, net foreign direct investment remained positive for the second consecutive month. Foreign portfolio investors continued to remain net sellers in April and May, though the pace of outflows moderated.
The available high-frequency indicators of economic activity in April generally suggest sustained demand, notwithstanding challenges in a few sectors. Early results of listed private non-financial companies for Q4:2025 26 reveal an improvement in business performance, with aggregate sales recording a double-digit growth.