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Source: Mint
Why in News?
The Reserve Bank of India (RBI) has stated in its December State of the Economy report that despite persistent global headwinds—including trade and policy uncertainties—India’s economic growth remains resilient, anchored by strong domestic demand, particularly private consumption and investment.
Key Takeaways from the RBI Report
1. Growth Performance
- GDP growth (Q2 FY26):8.2%
- Highest in six quarters
- Growth drivers:
- Private consumption demand
- Fixed investment
- Reflects “remarkable resilience” amid global trade uncertainties.
2. Demand & Sectoral Trends
- High-frequency indicators (November):
- Overall economic activity held up
- Urban demand strengthened further
- Services sector: Continued to remain robust
- Manufacturing: Showed some signs of deceleration
3. Global Environment
- Global headwinds persisted due to:
- Trade policy uncertainties
- Volatile global financial conditions
- However, global volatility eased slightly in November, and global economic activity expanded at a steady pace.
4. Financial Markets & External Sector
- Market sentiment in Q2 FY26 improved due to:
- Healthy corporate earnings
- Policy rate cuts by RBI and the US Federal Reserve
- Challenges:
- Muted foreign portfolio inflows
- Uncertainty over the India–US trade deal
- Impact:
- Foreign portfolio outflows from equities
- Downward pressure on the rupee
- Spillover effects on foreign exchange reserves
5. Monetary Policy Response
- Monetary Policy Committee (MPC):
- Unanimously cut the repo rate by 25 bps to 5.25%
- Cumulative rate cut since Feb 2025: 125 bps
- Rationale:
- Support growth amid global uncertainty
- Leverage benign inflation conditions