India’s Economy Remains Resilient Amid Global Uncertainty: RBI Financial Stability Report

India’s economy continues to record strong growth momentum, largely driven by robust domestic demand, despite persistent global challenges, according to the latest Financial Stability Report (FSR) released by the Reserve Bank of India (RBI).

About the Financial Stability Report
The FSR is a half-yearly publication of the RBI that incorporates inputs from all financial sector regulators. It presents the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on current and emerging risks to the stability of India’s financial system.

Benign Inflation and Sound Macroeconomic Policies
The RBI noted that benign inflation, continued fiscal consolidation, and prudent macroeconomic policies have significantly strengthened India’s economic resilience. These factors have helped the economy remain stable amid global headwinds.

Financial System Remains Sound
According to the report, India’s domestic financial system remains robust and stable, supported by:

• Strong balance sheets of banks and financial institutions
• Accommodative financial conditions
• Low levels of market volatility

These factors have contributed to overall financial stability.

External Risks and Cautionary Outlook
The RBI cautioned that near-term risks persist due to external uncertainties, particularly:

• Geopolitical tensions
• Global trade-related developments

It also warned that a sharp correction in US equity markets could spill over into Indian markets and potentially tighten domestic financial conditions.

Strong Buffers Against Shocks
Despite these risks, the RBI emphasised that India’s economy and financial system possess strong buffers to withstand adverse external shocks.

Global Economic Context
At the global level, the report observed that economic growth has been more resilient than expected, despite trade tensions, geopolitical risks and policy uncertainty. This resilience has been supported by:

• Front-loaded trade activities
• Fiscal measures
• Strong investment momentum, particularly linked to artificial intelligence (AI)