Daijiworld Media Network - New Delhi
New Delhi, Aug 25: India's economy has demonstrated notable resilience to ongoing global headwinds, supported by buoyant domestic demand and strengthening manufacturing and services activity, according to the Reserve Bank of India's (RBI) monthly bulletin released on Tuesday.
The global economic outlook continues to be shaped by geopolitical tensions in West Asia and fresh US tariffs. Despite risks to global trade and the growth-inflation outlook, India's robust macroeconomic fundamentals continue to provide a cushion to the domestic economy, the bulletin said.
The momentum recorded in the first quarter of 2026-27 continued into July, with domestic demand remaining strong. Several indicators, including vehicle and tractor sales, reflected sustained demand.
Growth in petroleum product consumption also returned to positive territory after three consecutive months of contraction.
Industrial production strengthened sharply in June, recording its strongest growth in nearly two years, supported by a broad-based acceleration in manufacturing activity. The services sector also continued to show resilience, the RBI observed.
The recovery in the southwest monsoon during July helped kharif sowing move closer to normal acreage, partly easing risks to the agriculture sector.
The government has also announced an Open Market Sales Scheme for the current financial year, backed by high public foodgrain stocks, to augment supplies.
Inflation and financial conditions
Headline consumer price index (CPI) inflation edged above the target, primarily due to supply-side pressures, the bulletin said.
At the same time, stable core inflation reaffirmed the relatively limited pass-through of cost pressures, it added.
Financial conditions remained supportive, marked by strong credit growth, comfortable liquidity and softening government securities yields, aided by a rebound in capital inflows.
Liquidity conditions eased during the period, supporting credit expansion and continued investment activity, according to the RBI.
External sector remains supported
Foreign capital inflows rebounded during the month, strengthening the external sector.
Both merchandise exports and imports recorded strong growth in July 2026, with exports registering their highest growth in a month so far in 2026-27.
However, the merchandise trade deficit widened in July on both a sequential and year-on-year basis, largely reflecting a widening deficit in electronic goods.
Fiscal position
The Centre's fiscal deficit increased marginally during the first quarter of 2026-27 compared with the corresponding period of the previous year, accompanied by higher capital expenditure.
The gross fiscal deficit of states was lower during the same period, the bulletin said.
System liquidity improved in July and August. The liquidity surplus narrowed during the second half of July due to tax outflows, but increased in August following a drawdown of government cash balances and measures taken to attract capital, according to the RBI.