Key Details
The RBI’s Economic Review chapter presents India’s 2025–26 macroeconomic position through indicators covering growth, inflation, fiscal policy, financial markets, and the external sector.
Macroeconomic Area | 2025–26 RBI Assessment |
|---|---|
GDP Growth | 7.6%; India remained the fastest-growing major economy |
Growth Drivers | Strong private consumption (+7.7%), fixed investment (+7.1%), services and manufacturing |
Inflation | Headline inflation moderated to 2.1%; food-price deflation played a major role |
Fiscal Position | Gross Fiscal Deficit (GFD) narrowed to 4.4% of GDP |
Credit & Financial Markets | Bank credit expanded 15.9%; digital payments and financial intermediation strengthened |
External Sector | CAD contained at 1.1% of GDP; forex reserves covered ~11 months of imports |
Key Risks | Trade tensions, geopolitical uncertainty, market volatility, and climate-related disruptions |
Summary
Growth and Domestic Demand
According to the RBI’s Economic Review, India maintained its position as the fastest-growing large economy in 2025–26, with GDP growth accelerating to 7.6% from 7.1% the previous year. Growth was supported primarily by private consumption, fixed investment, and broad-based domestic demand.
The services sector remained the principal growth engine, expanding 8.7%, while industrial activity accelerated to 9.5%, led by manufacturing. The Review notes that these gains were achieved despite rising global uncertainty linked to tariffs, geopolitical tensions, and slowing international demand.
Inflation, Fiscal Policy and Financial Conditions
Inflation conditions improved sharply during the year. Headline inflation moderated to 2.1%, supported by food-price deflation arising from record agricultural production and supply-side interventions. Food and beverages prices contracted 0.8% during April–December 2025, although core inflation averaged 4.3%, reflecting pressure from precious metals and selected non-food segments.
The Review also records continued fiscal consolidation, with the central government reducing the Gross Fiscal Deficit to 4.4% of GDP, alongside sustained emphasis on capital expenditure. Meanwhile, financial conditions remained supportive: bank credit expanded by 15.9%, led by services, retail, and MSME lending, while digital payments and monetary transmission continued to deepen.
External Stability and Emerging Risks
The external sector remained resilient despite global headwinds. The Current Account Deficit (CAD) stayed contained at 1.1% of GDP during April–December 2025, supported by strong services exports and remittance inflows.
Although the merchandise trade deficit widened to USD 333.2 billion, driven by imports of electronics and gold, India maintained strong external buffers. Foreign exchange reserves remained ample, covering roughly 11 months of imports, while external debt indicators stayed within manageable ranges. At the same time, the Review identifies continuing downside risks from global financial volatility, trade fragmentation, and weather-related disruptions such as El Niño.
What is a “Current Account Deficit (CAD)”?
The Current Account Deficit (CAD) measures the gap between a country’s foreign-exchange earnings and foreign-exchange spending. It records trade in goods and services, remittances, and investment income.
A moderate CAD is not necessarily a sign of weakness if financed through stable capital inflows and supported by strong reserves. However, persistent or excessive deficits can expose an economy to currency pressures and external financing vulnerabilities.
Policy Relevance
The RBI’s Economic Review suggests that India’s recent macroeconomic performance has been shaped by a combination of growth-oriented demand conditions and stabilization-focused policy management.
Validates the Growth–Stability Policy Balance: Strong GDP expansion alongside lower inflation and fiscal consolidation supports the strategy of combining capital expenditure with macroeconomic discipline.
Highlights the Importance of Food and Supply-Side Management: The sharp moderation in inflation underscores how agricultural output and supply interventions increasingly influence India’s price stability framework.
Supports Continued Financial Deepening: Sustained credit growth and digital-payment expansion indicate deeper financial intermediation and stronger monetary transmission across households and businesses.
Reinforces the Need for External Buffers: Contained CAD levels and strong reserves highlight the importance of maintaining foreign-exchange buffers amid volatile global markets and portfolio flows.
Signals the Need for Reform Continuity: The Review’s identification of geopolitical, climate, and trade-related risks suggests that medium-term resilience will depend on continued fiscal discipline, structural reforms, and productivity-enhancing investments.
Follow the Full Report Here: Reserve Bank of India: Annual Report 2025–26 – Economic Review Chapter