29_Mum_MS_RBIANNUAL

Rbi anticipates indian economy to grow 6.5% in 2025 26 with inflation stabilising at 4%Reserve Bank of India (RBI) anticipates the Indian economy to expand by 6.5% in 2025-26 and inflation to settle at 4.0%. In its Annual Report for 2024-25, the central bank stated, "Amidst a challenging global economic environment, the Indian economy exhibited resilience during 2024-25, supported by robust macroeconomic fundamentals and proactive policy measures." It warned, however, that risks to growth and inflation remain due to factors such as "the pace of disinflation losing momentum; elevated public debt across several economies; protracted geopolitical tensions; heightened trade tensions; financial market volatility; and climate shocks.""Financial markets may exhibit sporadic episodes of volatility triggered by turbulent global financial markets in the wake of heightened uncertainty regarding the evolution of trade tariff policies, among others," the RBI said. While India’s domestic outlook remains firm, "uncertainty about global trade post-protectionist measures, protracted geopolitical tensions, and global financial market volatility pose downside risks to the growth outlook and upside risks to the inflation outlook." The "increasing incidence of climate shocks as seen in recent years, however, warrants careful monitoring of the food price outlook." The report stated that "Policymakers face the daunting task of suitably calibrating monetary and fiscal policies to support growth while safeguarding financial and macroeconomic stability." Although market volatility may continue in episodes, the Current Account Deficit (CAD) "would remain eminently manageable in 2025-26." The services sector, it said, remained the "mainstay of aggregate supply," and "The production linked incentive (PLI) scheme helped to steer growth across several key manufacturing industries."The banking sector, according to the RBI, "has been resilient, although heightened global uncertainties underscore the importance of proactive risk management." The report noted that "Despite some moderation, NBFCs remain significantly dependent on banks for funding, underscoring the need for greater diversification of their funding sources." "The Indian economy is poised to sustain its position as the fastest-growing major economy during 2025-26." This momentum is expected to be driven by "pick-up in private consumption, healthy balance sheets of banks and corporates, easing financial conditions, and the govt's continued thrust on capital expenditure." "The easing of supply chain pressures, softening of global commodity prices, and higher agricultural production on the back of a likely above-normal south-west monsoon augur well for the inflation outlook in 2025-26."Agriculture, "supported by an above-normal south-west monsoon and several productivity-enhancing govt policies," is likely to perform well in 2025-26. Manufacturing is "expected to gain further traction in 2025-26 supported by improvement in domestic demand, higher capacity utilisation, healthy balance sheets of corporates and banks, and consumer and business optimism." "The construction sector is also expected to continue its robust performance in 2025-26 aided by increased allocation for Pradhan Mantri Awas Yojana (PMAY)." On the external front, the report projects "Global merchandise trade volume is projected to contract by 0.2 per cent in 2025" under the current tariff regime. "India's export sector is also expected to encounter some headwinds from rising geopolitical tensions, inward-looking policies, and the risk of a potential tariff war among major economies." Still, "India's participation in 14 free trade agreements (FTAs) and six preferential trade agreements (PTAs), along with the new trade deals under negotiation with the US, Oman, Peru, and the European Union (EU) may support growth in trade."In the financial sector, "all payment system participants were advised to review their payment systems/devices and make necessary modifications to enhance their accessibility to persons with disabilities." The RBI also noted that "Regulatory efforts also took centre stage on strengthening fraud reporting mechanisms and encouraging information security preparedness, with an emphasis on cyber resilience" and "To combat the increasing instances of fraud in digital payments, the Reserve Bank proposed to introduce an exclusive internet domain for the banks in India in the form of 'bank.in' on February 7, 2025." It added that "Going forward, it is also proposed to have an exclusive domain for other non-bank entities in the Indian financial sector in the form of 'fin.in'."