The Reserve Bank of India’s (RBI) latest monthly bulletin, released in May, paints a nuanced picture of the global and domestic economic landscape. While the world economy continues to grapple with persistent challenges, the Indian economy has demonstrated remarkable resilience, buoyed by robust domestic indicators and a temporary reprieve from escalating trade tensions.
Fragile Global Growth Outlook
According to the RBI bulletin, the global growth outlook remains fragile. Despite a recent pause in tariff hikes by the United States, which offered some respite to global markets, the broader environment is still fraught with uncertainty. The bulletin highlights several factors weighing on global growth: ongoing trade frictions, elevated policy uncertainty, and subdued consumer sentiment. These headwinds have collectively dampened the prospects for a sustained global recovery.
Trade tensions, particularly among major economies, have been a recurring theme over the past year. The imposition of tariffs and counter-tariffs has disrupted supply chains, increased costs for businesses and consumers, and injected volatility into financial markets. Even as the US administration announced a 90-day ‘pause’ on reciprocal tariffs for all countries except China on April 9, the lingering effects of earlier measures continue to cast a shadow over global trade flows.
Relief from US Tariff Pause
The US government’s decision to temporarily halt the imposition of new tariffs has been a welcome development for global markets. President Donald Trump’s announcement, made on April 9, signaled a 90-day suspension of reciprocal tariffs for all countries except China. This move came just a week after the US had imposed a steep 26 percent tariff on Indian goods on April 2, an action that rattled markets and prompted concerns about a potential escalation in trade hostilities.
The RBI bulletin notes that the announcement of the tariff pause acted as a major relief for markets, which had experienced a sharp downturn in the immediate aftermath of the initial tariff announcement. The so-called ‘Liberation Day’ declaration by President Trump was seen as a de-escalation of trade tensions, at least temporarily, and contributed to a recovery in investor sentiment.
Indian Economy’s Resilience
Amid this backdrop of global uncertainty, the RBI bulletin underscores the resilience of the Indian economy. Despite facing high trade and tariff-related uncertainty, India’s economic fundamentals have remained robust. The bulletin attributes this resilience to several factors, including strong performance in both industrial and services sectors.
“Various high frequency indicators of industrial and services sectors sustained their momentum in April,” the bulletin states. This suggests that key sectors of the Indian economy continued to expand, supported by steady demand and ongoing reforms. Indicators such as industrial production, services activity, and goods movement have all pointed to sustained economic momentum, even as external challenges persist.
Market Recovery and Corporate Performance
The initial response of the domestic equity market to the US tariff announcement was negative, with indices declining amid fears of a prolonged trade conflict. However, the RBI bulletin highlights that optimism on domestic growth, combined with the news of a temporary freeze on US tariff measures, led to a significant recovery in financial markets by mid-April.
A key driver of this recovery was the robust performance of Indian corporates, particularly in the banking and financial sectors. The bulletin notes that the release of strong corporate earnings reports for the fourth quarter of 2024-25 provided a further boost to investor confidence. As companies reported healthy profits and stable asset quality, market participants regained their appetite for risk, leading to a rebound in equity prices.
The resilience of the Indian equity market in the face of external shocks is indicative of the underlying strength of the economy. While global factors continue to influence market sentiment, domestic fundamentals—such as corporate profitability, credit growth, and policy support—have played a critical role in stabilizing the market.
Policy Uncertainty and the Road Ahead
Despite the recent recovery, the RBI bulletin cautions that the global environment remains fraught with risks. Persistent policy uncertainty, especially regarding trade and fiscal measures among major economies, continues to pose challenges for global growth. The ongoing negotiations and potential for further escalation in trade tensions could have spillover effects on emerging markets, including India.
The bulletin also notes that weak consumer sentiment in several advanced economies has weighed on global demand. As households grapple with higher prices and uncertain job prospects, consumption growth has slowed, impacting exports from emerging markets.
India’s Growth Prospects
Looking ahead, the RBI remains cautiously optimistic about India’s growth prospects. The sustained momentum in high-frequency indicators suggests that the economy is well-positioned to weather external shocks. Continued policy support, structural reforms, and a focus on enhancing productivity are expected to underpin growth in the coming quarters.
The RBI emphasizes the importance of maintaining macroeconomic stability in the face of global volatility. Prudent fiscal management, a stable monetary policy framework, and measures to enhance the resilience of the financial sector will be key to sustaining growth.
 latest monthly bulletin, released in May, paints a nuanced picture of the global and domestic economic landscape.){kind=link}