RBI bulletin signals 'virtuous cycle' of higher private investment-led growth ahead; here's why

Fiscal, monetary and regulatory steps taken this year should pave for a “virtuous cycle” of higher private investment, productivity and growth, the Reserve Bank of India (RBI) said in its November bulletin.

The central bank, in its article ‘State of the Economy’, asserted that India’s growth trajectory is becoming increasingly investment-led rather than consumption-dependent.

The central bank said private capital expenditure is showing clear signs of acceleration, backed by stronger corporate balance sheets, improved business sentiment and easier access to diversified funding channels.

“The Indian economy showed signs of a further pick-up in momentum, despite continuing global headwinds. Available high-frequency indicators for October suggest a robust expansion in both manufacturing and services activities, supported by festive season demand and the ongoing positive impact of the GST reforms,” the article stated.

The total cost of capital expenditure projects sanctioned by banks and financial institutions surged in the second quarter of 2025-26.

Much of this emerging investment pipeline is concentrated in power, construction, and road and bridge projects, the traditional bellwethers of a strengthening capex cycle.

Private corporates are also increasingly tapping equity and overseas debt markets for expansion financing.

Amid global trade policy uncertainties and external sector headwinds, India’s economy is turning out to be "more resilient to external shocks over time”.

India’s merchandise trade deficit widened to a record USD 41.7 billion in October after exports contracted and gold and silver imports surged due to festive demand. However, strong services exports, remittance inflows, benign crude oil prices and adequate foreign exchange reserves have cushioned the external sector, the RBI said.

Listed private manufacturing and services companies reported an improvement in sales growth during the September quarter, pointing to a strengthening domestic growth impulse.

The increasing share of renewables in India’s energy mix is adding further resilience, the article said, adding that key external vulnerability indicators improved as of June-end from their levels at March-end 2025.

"The fiscal, monetary, and regulatory measures undertaken so far this year should pave the way for a virtuous cycle of higher private investment, productivity, and growth, leading to long-term economic resilience," the article said.

Operating profits for manufacturers rose year-on-year, helped by lower input cost pressures and better utilisation rates, creating a favourable backdrop for fresh investment commitments.

On the foreign exchange market, it said the rupee (INR) depreciated slightly against the US dollar in October, reflecting the impact of a stronger greenback, following the US Fed’s policy announcement around the month-end.

According to data provided in the Bulletin, the Reserve Bank net sold USD 7.91 billion in the forex market in September to arrest the rupee slide against the greenback.

According to the data on operations in the onshore/offshore OTC segment, the RBI sold USD 10.11 billion and purchased USD 2.2 billion in September.

The central bank, however, said the views expressed in the 'State of the Economy' article published in the Bulletin are those of the authors and do not represent the views of the Reserve Bank of India.