According to the economic status report published by RBI officials on Tuesday, the recovery of the southwest monsoon in July helped bring the sowing of Kharif crops closer to normal levels, thereby partially reducing risks for the agricultural sector.
The report also highlighted that the domestic economy demonstrated significant resilience in the face of ongoing global difficulties, noted by high domestic demand and growth in activity in the manufacturing and service sectors.
It was observed that inflation, calculated based on the Consumer Price Index (CPI), exceeded the Central Bank's target of 4 percent, reaching 4.45 percent in July compared to 4.38 percent in June; this increase was mainly driven by supply-side pressures. Although food and beverages stimulated inflation, core inflation, excluding volatile food and energy prices, remained unchanged, indicating a low level of price transmission.
Furthermore, the report indicated that financial conditions are characterized by high credit growth, comfortable liquidity, and easing government bond yields, supported by the recovery in capital inflow. It should be noted that the opinions expressed in the report belong to the authors and do not reflect the official position of RBI.
According to Business Standard reports from Tuesday, forecasts from various agencies suggest that GDP growth is likely to slow to a quarterly low of around 7.2 percent in the June quarter, compared to 7.8 percent recorded in the March quarter of the 2026 fiscal year.
After recording a deficit in June, the southwest monsoon became active in July, keeping water reserves in all Indian rivers close to the ten-year average and above the level observed during the previous year's El Niño 2023. IMD data showed that the southwest monsoon, which had a deficit of 35.4 percent by the end of June, showed a surplus of 1 percent by the end of July due to strong rainfall recovery.
The report notes that 'the timely progress of Kharif sowing this year has been better compared to 2023.' Nevertheless, the India Meteorological Department (IMD) forecasts below-normal rainfall across India for the second half of the season (August and September).
To increase supply, the government also announced an open market sale scheme in the current fiscal year, relying on high stocks of government grains.
Emphasizing that the Indian economy continues to show strength despite global challenges, the report noted that domestic demand remained high, evidenced by various indicators including car and tractor sales. The report stated that 'India's stable macroeconomic fundamentals continue to provide a safety net for the domestic economy,' while observing that the momentum of the June quarter continued into July, as most high-frequency indicators reflected sustained activity in production and services, as well as double-digit expansion in goods exports and imports.
The report also covered that the growth in petroleum product consumption returned to positive territory after three consecutive months of decline, while industrial production sharply increased in June, reaching its strongest growth in nearly two years, supported by broad acceleration in the manufacturing industry. It was noted that 'the service sector also demonstrated resilience.'
The total volume of financial resources directed to the commercial sector increased in 2026–27 so far (as of July 31), driven by growth in non-food bank lending and increased Foreign Direct Investment (FDI) into India. Interest rates on new deposits and loans have risen in recent months amid growing credit demand.
FDI inflows improved in June 2026 compared to the previous month, aided by higher gross receipts. Net FDI stood at $1.3 billion in June 2026 compared to a negative $0.1 billion in May 2026 and $2.3 billion in June 2025. During the June 2026–27 quarter, net FDI reached $7.8 billion compared to $4.8 billion in the same period last year. Gross inward FDI amounted to $30.7 billion for the same period, higher than $26.7 billion a year earlier.
The report indicates that Singapore, Netherlands, USA, and Canada accounted for about 74 percent of the total equity inflows. Manufacturing held the largest share of equity inflows, followed by power generation, computer and communication services.
'Outward FDI continued to show a downward trend over the last two months. About 65 percent of outward FDI flows were directed to Singapore, UAE, and the USA,' the report states. The main sectors attracting outward FDI were finance, insurance, and business services, manufacturing, wholesale/retail trade, restaurants, and hotels, which together account for 74 percent of outward flows.