India’s economy shows resilience amid global volatility

Mumbai— India’s economy continues to demonstrate resilience despite rising global uncertainties triggered by the escalating conflict in the Middle East and renewed US trade investigations, according to the Reserve Bank of India’s (RBI) latest monthly bulletin released Monday.

The bulletin, citing the second advance estimates for GDP in 2025–26 (with a revised base year of 2022–23), highlighted steady economic strength supported by robust domestic demand. Private consumption and investment activity remained key growth drivers, with GDP expanding by a strong 7.8 per cent in the third quarter.

Recent high-frequency indicators point to further momentum in February. Economic activity picked up across both urban and rural areas, aided by tax relief measures, post-harvest cash flows from the kharif season, and seasonal spending linked to weddings. Retail sales of two-wheelers, passenger vehicles, and tractors hit record highs for the month, reflecting healthy demand conditions.

Inflation, however, edged higher in February, largely due to food and beverage prices. At the same time, system liquidity remained comfortable, and financing flows to the commercial sector increased, supported by both banks and non-banking channels. India’s foreign exchange reserves were described as adequate, providing a buffer against external shocks.

On the global front, the bulletin warned that the renewed Middle East conflict and US trade probes have reintroduced uncertainty around energy security, tariffs, and supply chains. A prolonged period of geopolitical tension could weigh on the already fragile global economic outlook.

India’s dependence on crude oil imports makes it vulnerable to such developments, the RBI noted, emphasizing the need for close monitoring and proactive policy responses. However, it also underlined that the country’s ability to absorb external shocks has improved over time, supported by strong macroeconomic fundamentals and a robust external sector.

Efforts to strengthen energy security have included diversifying crude import sources and expanding domestic refining capacity. Since the onset of the conflict, policy measures have also been implemented to mitigate disruptions in fuel supply chains and optimize domestic resources.

The RBI suggested that creating an Economic Stabilisation Fund could further enhance fiscal flexibility, enabling a more effective response to global headwinds.

Globally, February saw a resurgence in uncertainty after four months of easing, as geopolitical tensions intensified. Disruptions to critical energy infrastructure, including the closure of key routes such as the Strait of Hormuz, significantly impacted oil supply chains.

The International Energy Agency described the situation as one of the largest supply shocks in oil market history. Brent crude prices swung sharply, rising from around $78 per barrel to over $112 in March. Alongside oil and LNG, essential industrial inputs such as aluminium and urea also faced supply pressures.

Financial markets reacted swiftly. Equity markets declined, particularly in energy-importing regions across Europe and Asia. Bond yields in the US moved higher, while emerging market currencies weakened amid rising risk aversion. The US dollar strengthened as investors sought safe-haven assets.

Amid these uncertainties, major central banks opted to hold policy rates steady through February and March, the bulletin noted. (Source: IANS)