India’s Economy Shows Resilience Despite Geopolitical, Weather Risks: RBI Bulletin

India’s financial and external sectors continue to draw strength from a resilient domestic economy, even as geopolitical tensions and weather-related uncertainties pose downside risks, according to the latest RBI Bulletin.

The State of the Economy article said the escalation of the West Asia conflict in September has triggered a sharp rise in crude oil prices, raising concerns over global supply-chain disruptions and renewed inflationary pressures.

Despite the challenging global environment, the Indian economy recorded strong GDP growth in the first quarter of 2026-27, the article said. System liquidity remained in surplus in August and rose further during the first half of September as banks utilised the Reserve Bank’s FCNR(B) swap facility. Liquidity subsequently moderated due to tax-related outflows.

The RBI noted that money supply growth accelerated in August, driven by a rapid increase in aggregate deposits. Credit growth also maintained its momentum, while deposit growth picked up. Indian equity markets remained subdued through August and September, with geopolitical tensions and elevated bond yields weighing on investor sentiment.

The current account deficit remained moderate in Q1 2026-27, supported by robust services exports and remittance inflows. Net foreign direct investment (FDI) strengthened in July, reaching its highest monthly level in five years. Non-resident deposit inflows also rose sharply.

Foreign exchange reserves increased to USD 765.9 billion as of September 18, supported by capital-flow measures announced in June. However, foreign portfolio investors recorded net outflows in September after registering inflows in August, amid renewed West Asia tensions and rising global bond yields.

On inflation, high-frequency data up to September 21 showed a broad-based increase in food prices. Rice, wheat, pulses and edible oils recorded increases, while onion prices rose sharply. Tomato prices edged up, whereas potato prices declined month-on-month.