Global Slowdown Of 100 Bps Can Drag India's Growth By 30 Bps, Says RBI's Financial Stability Report
Geopolitical tensions, elevated uncertainty and trade disruptions, and weather-related uncertainty pose downside risks to growth, the RBI report said.
A deceleration in global growth will act as a drag on domestic output, according to the Reserve Bank of India's Financial Stability Report released on Monday.
It is estimated that a 100 basis points slowdown in global growth can pull down India’s growth by 30 bps, the report estimated.
While the Indian economy has exhibited resilient growth, the headwinds from protracted geopolitical tensions, elevated uncertainty and trade disruptions, and weather-related uncertainty pose downside risks to growth, the bi-annual report stated.
Despite an uncertain and challenging global economic backdrop, the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies.
Since India's growth is mainly driven by buoyant domestic demand, it remains relatively insulated from the global headwinds, the report said, adding that the economy continues to grow at a healthy pace, which coupled with steadily moderating inflation, is aiding macroeconomic and financial stability.
The RBI has projected the real GDP to grow at 6.5% in 2025-26, same as in 2024-25, supported by buoyant rural demand, revival in urban demand, an uptick in investment activity on the back of above-average capacity utilisation, government’s continued thrust on capex and congenial financial conditions.
The continued momentum in various high frequency indicators of services sector, robust agricultural production and above normal southwest monsoon forecasts, and strong goods and services tax collections underscore the sustained momentum and resilience of the economy, stated the report.
Notwithstanding the uncertainty surrounding the trade outlook, India’s external vulnerability indicators remain robust and continue to show improvement.
On the fiscal front, India’s public debt levels, primary deficit and share of interest payment in government revenue have remained relatively on the higher side compared to peer emerging economies. However, India’s fiscal position and credibility has enhanced significantly in recent years on account of ongoing fiscal consolidation, improvement in the quality of expenditure and earmarking of debt-to-GDP as the nominal anchor for the central government’s fiscal policy.
The domestic financial system is exhibiting resilience fortified by healthy balance sheets of banks and non-banks. Financial conditions have eased, supported by accommodative monetary policy and low volatility in financial markets.
The strength of the corporate balance sheets also lends support to overall macroeconomic stability. While the economy and the financial system are relatively well-positioned to withstand tariff-induced shocks, risks from global spillovers and escalation in geopolitical conflicts remain a key concern.
