Outlook for India is one of cautious optimism, says the RBI report

Business Standard

21-05-2025

Amid uncertainties in the global economy due to tariff wars and weak consumer sentiments, the Indian economy is exhibiting resilience with various high frequency indicators of industrial and services sectors sustaining their momentum in April, the monthly state of the economy report of the Reserve Bank of India (RBI) said.
The optimism on domestic growth, along with the news of a temporary freeze on tariff measures by the US, led to a significant recovery of financial markets by mid-April, the report said. It also observed the domestic equity market, which declined initially in response to the tariff announcements by the US, gained momentum in the second half of April in the wake of robust corporate earnings reports for the Jan-March period by some banking and financial sector companies.
'The global economic outlook remains clouded amidst shifting policy landscapes and lingering vulnerabilities. In the midst of these uncertainties, the outlook for India is one of cautious optimism,' the report, authored by RBI staffers, with the guidance of deputy governor Poonam Gupta, said.
It is clarified that views expressed in the report are not of the central bank's.
Citing IMF projections of April 2025, the report noted India is projected to remain the fastest growing major economy in 2025 and is likely to surpass Japan this year to become the world's fourth largest economy.
It further said that the inflation pressure has eased significantly and is poised for a durable alignment with the target in 2025-26.
'The prospects of bumper rabi harvest and the outlook of an above normal monsoon would further strengthen rural consumption and is also likely to keep food inflation in check. Consumers and businesses remain confident, supportive for a strengthening of economic activity,' it said.
The report pointed out that in the midst of global trade realignments and industrial policy shifts, India is increasingly positioned to function as a 'connector country' that can become a key intermediary in sectors such as technology, digital services and pharmaceuticals.
'Going forward, notwithstanding the daunting challenges in the horizon, India stands well-positioned to navigate the ongoing global headwinds with confidence, ready to harness emerging opportunities and consolidate its role as a key driver of global growth,' it said.
Highlighting that the benign headline inflation movements were primarily driven by the substantial easing of food prices seen since last winter, the report noted that core inflation (CPI excluding food and fuel inflation) movements continued to be disproportionately impacted by the highly elevated gold prices.
'Excluding its impact, underlying inflation pressures too remained muted,' it said.
The report said that inflation pressure has eased significantly and is poised for a durable alignment with the target in 2025-26.
'Consumers and businesses remain confident, supportive for a strengthening of economic activity' it added.