RBI sees ‘ground for optimism’ as India set to stay fastest-growing major economy

India’s economy offers “ground for optimism” going forward and is set to remain the world’s fastest-growing major economy in 2025-26 despite geopolitical tensions and global uncertainty, the Reserve Bank of India said on Wednesday.

In its monthly bulletin, the RBI said domestic growth drivers, a resilient banking system and improving financial conditions would help India navigate rising geo-economic risks in 2026.

India’s economy is estimated to grow at 7.4% in real terms in 2025-26, faster than the 6.5% growth recorded in 2024-25, according to the first advance estimates released on January 7.

The estimates projected real gross value added (GVA) rising 7.3% during the current fiscal.

The central bank said the first advance estimates for 2025-26 reflected the resilience of the Indian economy, supported by private consumption and fixed investment, while manufacturing activity is expected to rebound strongly and services remain buoyant.

“Even amidst these global uncertainties, the current state of the economy provides ground for optimism going forward,” the ‘State of the Economy’ article published in the RBI bulletin noted.

Global growth remained resilient in 2025 despite elevated uncertainty, the bulletin said, noting that the International Monetary Fund has revised up its global growth outlook for 2026 on the back of technology-led investment and supportive fiscal and monetary policies.

“The balance of risks to the growth outlook, however, remained tilted to the downside,” the article said.

High-frequency indicators for December suggested sustained momentum in India’s growth impulses. The article pointed to a resurgence in rural demand and a gradual recovery in urban consumption.

Headline consumer price inflation edged up in December but remained below the central bank’s lower tolerance level for the fourth straight month.

The uptick was driven by easing food deflation and a mild pickup in core inflation, which continues to be disproportionately influenced by precious metal prices, the article said.

"The flow of financial resources to the commercial sector has increased over the past year, with both non-bank and bank sources contributing to the credit pick-up," it added.

The article also noted that India has made significant efforts to diversify and strengthen its exports, aiming to mitigate external sector risks.

The country is currently engaged in trade negotiations with 14 countries or groups, representing nearly 50 nations, including the European Union, Gulf Cooperation Council countries, and the US. In December 2025, India concluded trade negotiations with New Zealand and Oman.

Equity markets saw modest gains in December and portfolio flows to emerging markets rebounded, but fresh tariff warnings by the United States and rising geopolitical tensions weighed on sentiment in January, the RBI said.

India’s external sector continues to remain resilient, underpinned by comfortable foreign exchange reserves, a sustainable current account deficit and an improved international investment position, the bulletin added.

The RBI also highlighted progress on structural reforms in 2025, including tax rationalisation, labour market reforms and financial sector deregulation, which it said would strengthen growth prospects.