The Reserve Bank of India assessed the country's economy as holding steady amid a deteriorating global environment, according to its September Bulletin, pointing to sustained growth, healthy services exports, foreign direct investment flows, and record-level foreign exchange reserves as factors offsetting the pressures of geopolitical instability and tightening international financial conditions.
Heightened tensions across West Asia in September drove crude oil prices upward, raising concerns about potential supply-chain disruptions and a possible return of inflationary pressure. Elevated sovereign bond yields across several developed economies are adding strain to public finances, while climate-related uncertainties continue to pose downside risks, according to the RBI's State of the Economy report.
The country's economy expanded by 7.8% in the April–June quarter of 2026–27, with real-time data pointing to continued momentum through August. The trade gap held at a contained level through the opening quarter, underpinned by steady earnings from services exports and inflows from overseas remittances.
Net foreign direct investment climbed to a five-year peak in July, with non-resident deposit inflows also recording a pronounced upturn over the same period. India's foreign exchange reserves reached a record $765.9 billion as of 18 September, a level the Reserve Bank of India attributed in part to capital-flow controls introduced three months earlier.
Banking system liquidity held in surplus through August and climbed further during the opening fortnight of September, driven by lenders drawing on the Reserve Bank of India's foreign currency non-resident swap window. Available liquidity eased in the period that followed, driven by fiscal outflows.
Lending activity held steady while deposit accumulation gained pace, and the broader money supply expanded at a quicker rate in August, driven by an upturn in total deposit growth. Throughout August and September, stock markets in India traded at muted levels, with geopolitical pressures and rising bond yields across global markets dampening investor appetite.
Overseas portfolio investors shifted to net outflows in September, reversing the inflows recorded the previous month, amid escalating tensions in the Middle East and an uptick in global bond yields. According to the RBI, real-time indicators through 21 September reflected a widespread month-on-month rise in food costs.
Costs for rice and wheat kept climbing, with staple pulses and cooking oils also recording upward price movements. Vegetable costs showed mixed movement, with onion and tomato rates climbing while potato values fell.
The Bulletin also published a piece analysing the banking sector's credit-to-deposit ratio climbing past the 80% threshold. The piece clarified that the metric alone does not point to vulnerability in funding, given that banks have managed to sustain lending expansion by adjusting their liabilities, capital structures, and asset portfolios.
A separate report indicated that business investment from the private sector displayed signs of recovery heading into 2025–26. Projected data from the investment pipeline points to anticipated private-sector capital outlay of approximately ₹3.2 lakh crore in 2026–27, reflecting a sustained trajectory of expenditure activity.
The Reserve Bank of India noted that opinions featured in its Bulletin publications belong solely to the individual authors and are not a reflection of the institution's official position.
