RBI Says India's Economy Is Strong; But Two Risks Could Change Everything
EconomyEdited by:Priya RaghuvanshiUpdated Jul 23, 2026, 15:54 ISTRBI says India's economy remains resilient but warns the Iran war and an uneven monsoon could pose risks to growth, inflation and policy. . .
EconomyEdited by:Priya RaghuvanshiUpdated Jul 23, 2026, 15:54 ISTRBI says India's economy remains resilient but warns the Iran war and an uneven monsoon could pose risks to growth, inflation and policy outlook. Reserve Bank of India (Image Source: iStock)India's economy continues to display resilience despite global uncertainties, but the Reserve Bank of India (RBI) has cautioned that geopolitical tensions in the Middle East and an uneven southwest monsoon could weigh on the country's growth and inflation outlook in the months ahead. In its State of the Economy report for July, released on Wednesday, the central bank said domestic economic activity has remained steady, supported by robust demand and healthy performance across manufacturing and services. However, it also stressed external and weather-related risks that require close monitoring. “The domestic economy has navigated the external uncertainties well, underpinned by healthy demand conditions and resilient performance of the industrial and services sector,” theReserve Bank of Indiasaid in its State of the Economy report for July, released Wednesday. High-frequency indicators also suggested robust industrial performance and a resilient services sector, it said. RBI Sees Domestic Economy Holding FirmThe central bank's latest assessment suggests that India's growth momentum remains intact despite ongoing global challenges. Strong industrial activity and resilient services-sector performance have continued to support overall economic expansion, backed by healthy domestic demand. Market participants widely expect the RBI to leave benchmark interest rates unchanged at its monetary policy meeting scheduled for August 5. That would make India one of the few major economies in the region that has refrained from altering monetary policy in response to the conflict in the Middle East. hicGovernor Sanjay Malhotra has previously indicated that the policy rate is expected to remain at 5. 25 per cent, unless inflationary pressures become more widespread across the economy. Iran Conflict And Monsoon Remain Major WatchpointsWhile the domestic economy has remained stable, the RBI noted that two important risks could affect the outlook. The southwest monsoon, responsible for nearly 70 per cent of India's annual rainfall, plays a crucial role in supporting the country's nearly $300 billion agricultural economy. Rainfall patterns directly influence food production, rural consumption and overall economic activity. An uneven monsoon could also put upward pressure on food prices if crop sowing is affected. At the same time, the Iran war has added fresh uncertainty to global energy markets. Since India imports more than 85 per cent of its crude oil requirement, any sustained increase in international oil prices could raise imported inflation and impact the broader economy. Growth And Inflation Outlook Remains StableDespite these concerns, the RBI has retained its outlook for the current financial year. The central bank expects the Indian economy to expand by 6. 6 per cent in the fiscal year ending March, while projecting average inflation at 5. 1 per cent. The inflation forecast factors in the possibility of higher crude oil prices and weather-related disruptions to agriculture due to the uneven progress of the southwest monsoon. However, the RBI believes existing food reserves could help cushion the impact on food prices. In its latest report, the RBI said “the farm sector is witnessing an uneven southwest monsoon, but the impact on food inflation may be mitigated by comfortable foodgrain stocks. ”With policymakers closely tracking both domestic and global developments, investors will now turn their attention to the RBI's monetary policy decision on August 5, where interest rates are expected to remain unchanged unless inflation risks intensify significantly. Priya RaghuvanshiauthorShe is working as a Chief Copy Editor at Times Now’s Business Desk, where she covers key developments in the stock market, Indian corporates across se. . . View MoreNewsBusinessEconomyEnd of Article