Despite global headwinds India to remain fastest-growing economy: RBI

MUMBAI: RBI has said that the first advance estimates of real GDP growth for 2025-26 reflected the resilience of the Indian economy, driven by domestic factors amid a challenging external environment, adding that high-frequency indicators for December pointed to continued buoyancy in growth impulses with demand conditions remaining upbeat.In its State of the Economy article published in the January 2026 bulletin, Reserve Bank of India said real GDP growth in 2025-26 is estimated at 7.4%, accelerating from 6.5% in the previous year, and positioning India as the fastest-growing major economy globally. The central bank said the improvement in growth prospects is expected to be supported by a strong rebound in manufacturing activity and sustained momentum in services, which together are likely to lift gross value added.The RBI said domestic demand continues to remain upbeat, supported by a resurgence in rural demand and a gradual recovery in urban consumption. Private final consumption expenditure and fixed investment remain the key drivers of demand, underpinning the economy’s resilience despite persistent global headwinds.On inflation, the central bank noted that headline consumer price inflation edged up to 1.3% in December but stayed below the lower tolerance band for the fourth consecutive month.

The uptick was attributed to a moderation in the pace of food deflation and a pick-up in core inflation, which the RBI said remains disproportionately influenced by movements in precious metal prices.The bulletin flagged several downside risks to the growth outlook, noting concerns over concentration risks in US markets and uncertainty surrounding the stalled India-US trade negotiations and the depreciation of the rupee.

It said downward pressures on equity markets resurfaced after fresh tariff warnings from the US, while dimming market expectations of further rate cuts contributed to a hardening of government securities yields.

The RBI also pointed to transient liquidity tightness in the banking system in late December.The central bank cautioned that simmering conflicts and the escalation of geopolitical tensions in the Middle East and other regions continue to pose elevated geo-economic risks, contributing to volatility in global financial markets.

It added that the balance of risks to growth remains tilted to the downside.Assessing the broader macroeconomic landscape, the RBI highlighted India’s strengths in terms of resilience to global shocks, robust domestic demand, a buoyant services sector and improved asset quality with strong capital buffers in the banking system. At the same time, it flagged weaknesses such as weakened merchandise exports due to steep US tariffs, net exports acting as a drag on growth, and nominal GDP growth touching a five-year low.The bulletin identified structural reforms, including GST rationalisation and labour market codes, as key opportunities to strengthen medium-term growth, alongside a rapid clean energy transition and ongoing trade negotiations with around 50 countries. It also referred to initiatives such as the SHANTI Bill and the Nuclear Energy Mission, which aim to raise nuclear power capacity to 100 GW by 2047.In a call to regulated entities, including banks and NBFCs, the RBI urged a balanced approach between innovation and stability, with a strong emphasis on consumer protection. It said entities must adopt prudent regulatory and supervisory practices and maintain resilience to withstand losses under adverse scenarios, as reflected in macro stress test results, to support sustainable long-term growth and productivity.