RBI Report Flags Global Risk, India Economy Growth, Inflation

In its most recent June 2025 bulletin, the Reserve Bank of India (RBI) has sounded alarm about volatility in the global economy although it did observe that momentum on the domestic front in India was good against constantly shifting world winds. The comments made by the central bank are made when the world is experiencing an increased level of geopolitical tensions and risky trade policies which were redefining economic perspectives across the planet.

Despite this turbulence, India appears to be holding firm. The activity of services and industrial production was steady in May 2025, with the Purchasing Managers Index (PMI) of services recording 58.8% and the manufacturing PMI recording 57.6% all well beyond their historical average.

However, some urban demand indicators have softened. Passenger cars sales have been decreasing, particularly, the entry level business potentially indicating on the caution of urban consumers. On the bright side, the recovery in the rural demand was evident. May saw a gain in two-wheeler sales that indicated steady rural consumption levels. The work rate under MGNREGS also improved indicating that the rural work market is under pressure and formal job generation as indicated in Naukri index is weakened.

The GDP growth of India is also expected to be 6.5 percent in the FY 2025-26 and this information was also released by the bulletin of the Reserve Bank. Good agricultural production due to good rabi and kharif crops, solid replenished reservoirs and sustained government capital spending are quoted as some of the growth facilitators.

Easing Inflation and Policy Adjustments

Retail inflation decelerated to April 2011 four-year low of 3.2 percent, down f an all-time 5.9 percent in March due to sustained gentleness in food price. The 2017 inflation outlook is still benign at 3.7 percent (compared to the central bank target of 3-6 percent) and therefore the central bank can cut the repo rate by 50 basis points to 5.5 percent and shift to a neutral policy position.

Liquidity conditions have also swung into surplus. In a phased format of which will begin in September 2025, the RBI will infuse 2.5 lakh crore into the financial system by reducing the Cash Reserve Ratio (CRR) in the financial system.

The RBI noted that India’s external position remains robust. The foreign exchange reserves grew to $691.5 billion, gross inflow of FDI increased by 14 percent to $81 billion, in FY 2025, but due to increased repatriation boosted net inflows were reduced. The current account deficit stayed within sustainable thresholds.

The area of financial inclusion has been one of the priorities- Jan Dhan accounts have surpassed 55 crores, of which 56 percent have been women account holders. The usage of digital payments was on a high growth path with 84 per cent of the 60.8 crore transactions per day being by the use of UPI.

Challenges Ahead: Microfinance Stress and Consumer Redressal

Notwithstanding the positive macro scenario, the central bank has added a warning note over microfinance and retail finance weakness. Consumer complaints also saw a rise of 33 percent in FY24 as the regulator expressed the hope to deploy more stringent grievance redressal procedures due to the rising instances of mis-selling and digital frauds.

RBI Monetary Policy Committee will revise its subsequent policy actions in its meeting on August 4 6, 2025.