India to remain fastest-growing major economy despite global tensions: RBI

Kolkata: The current state of the Indian economy along with the high-frequency indicators provides ground for optimism even as the escalation of geopolitical tensions could lead to policy uncertainty, the Reserve Bank of India's January bulletin said.

The central bank highlighted that India's GDP growth estimates for 2025-26 at 7.4% could ensure that the country remains the fastest growing major economy in the world. Meanwhile, amid the uncertainty over the trade negotiations with the US, Indian exporters have made significant efforts to diversify and strengthen its exports.

The year 2026 began with an escalation of geopolitical tensions, marked by the US intervention in Venezuela and its imperialistic stance on Greenland, the conflict in the Middle East and ambiguity surrounding the Russia–Ukraine peace deal.


"All of which point to still-elevated geo-economic risks and policy uncertainty ahead," RBI's economic researchers said in the monthly report. They, however, remain positive on India's prospect: "Even amidst these global uncertainties, the current state of the economy provides ground for optimism going forward."

RBI maintained that the view expressed in this report is of the researchers, who were guided by deputy governor Poonam Gupta.

The high-frequency indicators for December suggested continued buoyancy in growth impulses with demand conditions remaining upbeat, RBI researchers observed in the state of economy report. The net exports however acted as a drag on growth so far. The headline CPI inflation inched up to 1.3% in December from 0.7% a month back but remained below the lower tolerance level,

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, giving the economy the required boost.

"Going forward, the policy focus on striking a balance between innovation and stability, consumer protection, and a prudent approach to regulation and supervision should help improve productivity and support long-term economic growth," the report said.

To be sure, the first advance estimates projected a real GDP growth of 7.4% for 2025-26, up from 6.5% a year ago.

The resilience is largely driven by domestic factors while exports took a beating post imposition of steep tariff by the US. A strong rebound in the manufacturing sector and continued buoyancy in services are expected to boost growth in gross value added (GVA), RBI observed. Demand conditions remained upbeat, underpinned by a resurgence in rural demand and a gradual recovery in urban demand.

The RBI report also highlighted India's progress in diversifying its exports, aiming to mitigate external sector risks.

India 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 United States. The month of December saw India concluding trade negotiations with New Zealand and Oman.

This followed the US levy of a penal 50% tariff on Indian goods exports beginning from August 27, 2025. This combined the baseline tariff of 10% effective from April 2, 2025, a reciprocal tariff of 25% from August 1, 2025, and an additional 25% tariff effective from August 27, 2025. The world's largest economy has announced an additional 25% tariff on countries continuing to trade with Iran.