India is well-positioned to navigate current global economic challenges, states the Reserve Bank of India (RBI) in its recent bulletin. This resilience is attributed to strong economic fundamentals, decreasing inflation, and effective foreign exchange management.
Simultaneously, New Delhi is adjusting to evolving global trade dynamics, including a crucial tariff agreement with the US and the successful finalization of a significant free trade pact with the United Kingdom. The RBI’s May bulletin noted, “The global economic outlook remains clouded amidst shifting policy landscapes and lingering vulnerabilities.” However, it added, “India stands well-positioned to navigate the ongoing global headwinds with confidence, ready to harness emerging opportunities and consolidate its role as a key driver of global growth.”
RBI Eases Rates as Inflation Cools
Retail inflation in India fell to 3.16% in April, marking the third consecutive month below the RBI’s 4% target and the lowest level since July 2019. With inflation pressures subsiding, the central bank has adopted an ‘accommodative’ monetary policy stance, implementing its second rate cut in April and indicating further support to stimulate growth. The bulletin also highlighted the potential impact of rising temperature anomalies on vegetable prices, advocating for the quicker adoption of climate-resilient crops to support long-term price stability.
Forex Reserves Surge Amid Rupee Rally
In a clear indication of active intervention, the RBI reported a net purchase of $14.36 billion in the spot foreign exchange market in March, contrasting with a $1.6 billion net sale in February. This action coincided with the Indian rupee appreciating over 2% during the month, bolstered by a weaker US dollar and robust foreign inflows.
The rupee traded between 85.39 and 87.44 against the US dollar in March and was at 85.6375 on May 22. By the end of March, the RBI’s net forward sale contracts stood at $84.35 billion, demonstrating continued efforts to manage currency volatility.
IMF Outlook: India to Remain Fastest-Growing Major Economy
The International Monetary Fund (IMF) shares a similarly optimistic perspective. In its latest World Economic Outlook, the IMF projected India’s economy to grow by 6.8% in 2025, solidifying its position as the fastest-growing major economy globally.
The IMF attributed India’s growth momentum to strong domestic demand, government infrastructure spending, and resilient services exports, even as global growth remains subdued. The Fund also commended India’s commitment to maintaining macroeconomic stability, particularly amidst tight global financial conditions and ongoing geopolitical uncertainties.
Navigating Global Trade Tensions
The RBI’s positive outlook comes as India re-evaluates its global trade strategy. Following President Donald Trump’s April 9 announcement of a 90-day tariff pause, India is working to finalize a trade deal with the US to avert a potential 26% punitive tariff on Indian exports. This pause offers a brief window for negotiations, with New Delhi aiming for quicker access for key sectors such as pharmaceuticals, textiles, and IT services.
Conversely, India has achieved a significant breakthrough with the United Kingdom. Earlier this month, India and the UK successfully concluded negotiations for a long-anticipated free trade agreement (FTA), a deal that has been in progress since January 2022. The India-UK trade pact seeks to double bilateral trade from $60 billion to $120 billion by 2030. It eliminates import duties on 99% of Indian goods entering the UK, providing enhanced access for sectors like textiles, gems and jewellery, auto parts, and agriculture.
In return, British firms will gain broader access to India’s rapidly expanding market, including areas such as legal services, education, and renewable energy. India has also ensured the protection of sensitive sectors, striking a balance between trade liberalization and domestic interests.