Robust domestic demand and low inflation key growth drivers: RBI
RBI notes robust domestic demand and low inflation as growth drivers
The Indian economy has so far exhibited resilience, driven by a focus on strong and durable macroeconomic fundamentals amid broader global uncertainty and weak external demand, a Reserve Bank of India (RBI) bulletin said on Monday.
Global uncertainty has edged up, said an article on 'State of the Economy' published in the RBI's October Bulletin.
In the US, both trade and economic policy uncertainty increased in September. Global growth, however, has broadly held up. Investor sentiments dampened in October, on renewed US-China trade tensions and prolonged US government shutdown, after a phase of buoyancy.
The Indian economy displayed resilience amidst broader global uncertainty and weak external demand.
High-frequency indicators point to a revival in urban demand and robust rural demand.
"While the Indian economy is not immune to global headwinds, it has so far exhibited resilience, driven by a focus on strong and durable macroeconomic fundamentals, including low inflation, robust balance sheets of banks and corporates, adequate foreign exchange reserves and a credible monetary and fiscal framework," the article said.
The RBI said the views expressed in the bulletin article are of the authors and do not represent the views of the Reserve Bank of India.
Headline consumer price index (CPI) inflation moderated sharply in September, marking its lowest reading since June 2017, as per the bulletin.
The article also noted that high-frequency food price data for October so far (up to 17th) point towards a pick-up in cereal prices.
Among pulses, prices moderated for gram dal, tur/arhar dal and moong dal.
Within edible oils, prices firmed up for mustard oil, sunflower oil and palm oil while groundnut oil prices eased. Key vegetable (tomato, onion, and potato) prices softened, with the decline being most pronounced for tomatoes.
"As noted in the Monetary Policy Committee resolution of October 1, 2025, the growth outlook remains resilient, supported by domestic drivers, despite uncertainties on the external front," it added.
The RBI's article further said domestic structural reforms are helping to somewhat offset the drag on growth from the weakening external demand conditions.
The current macroeconomic conditions and the outlook, as noted by the MPC, has opened up policy space for further supporting growth.
On the domestic currency, it said the rupee depreciated against the US dollar in September amidst elevated trade tensions, heightened global uncertainties, and persistent foreign portfolio investment outflows.
The depreciation in the real effective exchange rate was mainly driven by the depreciation in the nominal effective exchange rate.
Net foreign portfolio investment flows continued to remain negative for the third consecutive month in September driven by equity outflows amidst weak investor sentiments on concerns over US tariff measures and the steep hike in H-1B visa fees.
It also noted gross inward foreign direct investment (FDI) moderated in August. Singapore, Cayman Islands, the UAE, the Netherlands, and the US accounted for more than three-fourths of total inflows.
Manufacturing, computer services, construction, and financial services were the top recipient sectors.
Net FDI turned negative in August, due to a moderation in gross inflows and an increase in repatriation, it added.