Indian Economy Resilient Amid Global Headwinds Says RBI Bulletin

Amidst global headwinds, the domestic economy demonstrated notable

resilience, characterised by buoyant domestic demand, and rising

manufacturing and services activity.

“The global economic outlook continues to be shaped by geopolitical

frictions in West Asia and fresh tariffs by the US. Despite these

risks to global trade and the growth-inflation matrix, India’s robust

macroeconomic fundamentals continue to provide cushion to the domestic

economy,” said the RBI economists in an article “State of the Economy”

published in the August Bulletin.

The RBI article said that the momentum of Q1:2026-27 continued in July

with most of the high-frequency indicators reflecting sustained

manufacturing and services activity, and double digit expansion in

merchandise exports and imports. The recovery in southwest monsoon in

July helped in kharif sowing reaching closer to normal acreage.

While headline CPI inflation rose fractionally, reflecting food

inflation; core inflation remained stable. Liquidity conditions eased,

supporting credit growth and ongoing investment activity.

On the US Section 301 tariffs that imposed an additional 10 per cent

tariff on India, the article said India's major export commodities to

the US, such as smartphones, petroleum products and pharmaceuticals,

remain outside its purview.

"India is likely to be less affected than some of the Asian economies

in the US market, such as China, Vietnam and Thailand," it said.

It also said foreign direct investment (FDI) flows improved in June

2026 from the previous month, supported by higher gross inflows.

Singapore, the Netherlands, the US, and Canada accounted for around 74

per cent of the total equity inflows. Manufacturing received the

highest share of equity inflows, followed by electricity generation,

computer, and communication services. The outward FDI continued to

register a downward trend for the last two months. About 65 per cent

of the outward FDI flows were directed to Singapore, the UAE, and the

US.

In July, foreign portfolio investors turned net buyers in equity

segment, reversing four consecutive months of outflows. In August

(till 20th), foreign portfolio investors pumped in US$ 1.9 billion

into the market, largely supported by the equity segment.

Financial conditions are characterised by high credit growth,

comfortable liquidity, and softening G-sec yields supported by rebound

in capital inflows said the report.