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Growth was chiefly supported by robust backstage depletion and sustained concern activity.
Amid the Middle East situation and the US-Iran conflict, the Indian economy is successful absorption for the imaginable fallout from the warfare and rising planetary crude lipid prices that is present hitting the outer sector's resilience. However, striking a affirmative note, the Reserve Bank of India (RBI) successful its yearly study has expressed assurance successful India’s ‘strong macroeconomic fundamentals’.Acknowledging the interaction of the West Asia crisis, the RBI has said that respective factors volition assistance India antagonistic the antagonistic effects and look strong. Despite facing aggregate planetary challenges, India maintained a beardown maturation trajectory, with GDP projected to grow by 7.6% successful 2025-26 compared with 7.1% successful the erstwhile year.RBI's yearly study comes astatine a clip erstwhile India is dealing with the interaction of the ongoing Middle East conflict: rupee is falling, banal markets are successful red, forex reserves are dipping, planetary crude lipid prices are rising starring to a hike successful petrol and diesel prices. Growth was chiefly supported by robust backstage depletion and sustained concern activity. While the instauration of US tariffs initially raised concerns, their wide effect remained limited, with nett exports shaving disconnected lone 0.1 percent constituent from growth. On the accumulation side, beardown performances by the services and manufacturing sectors compensated for weaker momentum successful agriculture.
"The home system successful 2026-27 is expected to stay resilient, contempt challenging outer situation characterised by elevated vigor and commodity prices, rising logistics costs, volatility successful planetary fiscal markets and uncertainties surrounding planetary commercialized policies.
Growth prospects are supported by India’s beardown macroeconomic fundamentals, including robust home demand, comparatively little dependence connected exports arsenic a maturation driver, and a unchangeable argumentation environment.
," RBI says.
RBI’s Assessment of Indian Economy Amid US-Iran Conflict
- “Geopolitical hazard has re-emerged arsenic the ascendant resistance connected planetary maturation successful 2026. The adverse interaction of the outbreak of the struggle successful West Asia successful end-February 2026 is reflected successful the forecasts of planetary maturation and inflation,” says RBI.
- Under its baseline assessment, the IMF present expects the planetary system to turn by 3.1% successful 2026, little than the 3.3% forecast issued successful January 2026. Global commercialized successful goods and services is besides expected to slow, with maturation successful commercialized volumes projected astatine 2.8% during the year. Any escalation, prolonged duration oregon wider geographical dispersed of the struggle remains a important downside hazard to the planetary outlook.
- Persistent geopolitical uncertainty is besides expected to support inflationary pressures elevated. Higher vigor prices and disruptions to large shipping routes could worsen supply-side constraints. Reflecting these developments, the IMF has revised its planetary ostentation forecast for 2026 to 4.4%, up from the 3.8% estimation released earlier successful January.
- “Financial markets whitethorn grounds higher volatility with tighter macroeconomic conditions and broader risk-off sentiment. Elevated valuations successful exertion sectors whitethorn acquisition reassessment, raising the hazard of corrections successful equity markets. With accrued protectionism and indebtedness sustainability concerns, the escalating geopolitical hazard calls for coordinated argumentation actions crossed fiscal, monetary and multilateral fronts,” the cardinal slope said.
However, adjacent against this backdrop of slowing planetary growth, India’s outlook remains positive.“The outlook for the Indian system successful 2026-27 remains positive, supported by beardown macroeconomic fundamentals, though a prolonged West Asia struggle whitethorn airs downside risk,” the cardinal bank’s yearly study says.“The steadfast equilibrium sheets of the firm and banking sectors on with the government’s continued thrust connected superior expenditure bode good for India’s beardown maturation trajectory. Moreover, implementation of assorted commercialized agreements with the cardinal trading partners would supply further momentum to India’s growth,” it adds.At a sectoral level, the show of the agriculture assemblage successful 2026-27 volition mostly beryllium connected the progress, timing and geographical dispersed of the south-west monsoon. The anticipation of El Niño conditions remains a cardinal hazard origin and could measurement connected workplace output. However, the emergence of favourable Indian Ocean Dipole conditions aboriginal successful the monsoon play is expected to supply immoderate enactment and partially counterbalance these risks. Importantly, the RBI notes that agriculture’s dependence connected rainfall has gradually reduced implicit the years owed to expanding irrigation coverage, amended farming practices and advances successful cultivation technology.Geopolitical tensions could make challenges for the availability and pricing of captious workplace inputs, peculiarly fertilisers. Nevertheless, authorities measures aimed astatine maintaining capable supplies done diversified sourcing strategies and buffer banal absorption are expected to assistance incorporate these risks. RBI believes that the authorities is besides expected to support its accent connected growth-oriented superior expenditure, which should proceed to enactment economical activity.Inflation during 2026-27 is projected to stay broadly accordant with the target, supported by comfy foodgrain inventories, capable reservoir levels and a favourable cultivation outlook contempt the anticipation of El Niño conditions and higher-than-normal summertime temperatures. “ However, the evolving upside risks to ostentation whitethorn emanate from aggregate different factors specified arsenic spike successful planetary substance and commodity prices amid geopolitical tensions, imaginable spillovers to input and wage costs, and volatility successful speech rate. Considering each these factors, CPI ostentation for 2026-27 is projected astatine 4.6 per cent with risks tilted to the upside,” the study says.
