RBI: India’s Growth Outlook Remains Firm Amid Trade Deal Uncertainty and Policy Watch

RBI: India’s economic fundamentals remain strong and continue to provide a supportive base for growth, even as uncertainty around the India–US trade agreement creates some near-term risks. Analysts believe that while the overall outlook is positive, prolonged delays in resolving trade-related issues could prompt further policy action from the Reserve Bank of India to safeguard economic momentum.

Strong Economic Base Supports Growth

India enters the coming financial years with relatively solid macroeconomic conditions. Stable domestic demand, controlled inflation, and a resilient financial system have helped the economy maintain a healthy growth trajectory. These factors have ensured that India remains one of the fastest-growing major economies globally, despite ongoing geopolitical and trade-related uncertainties.

Economic observers note that the country’s internal drivers of growth, particularly consumption and public investment, continue to offer stability. While global headwinds have increased volatility, India’s domestic-oriented economy provides a buffer against sharp external shocks.

Trade Deal Delays Could Create Headwinds

One of the key risks on the horizon is uncertainty surrounding the India–US trade agreement. If negotiations extend beyond the first quarter of FY27, analysts warn that trade-related pressures could begin to weigh on growth. Extended delays may affect exports, investment sentiment, and business confidence, especially in sectors closely linked to international trade.

Should these headwinds persist into the latter half of the financial year, policymakers may need to respond more actively. Both fiscal and monetary authorities are expected to closely monitor developments and remain prepared to act if growth shows signs of slowing.

RBI May Use Policy Space If Needed

The Reserve Bank of India still has limited policy space available to support the economy if conditions worsen. If trade uncertainties translate into weaker growth outcomes, further interest rate cuts could be considered to stimulate demand and encourage investment. Such measures would aim to cushion the economy from external shocks while maintaining financial stability.

Market participants believe that any additional monetary easing would be carefully calibrated, taking into account inflation trends and global financial conditions. The central bank’s approach is likely to remain data-driven and responsive to evolving risks.

Gradual Recovery in Mass Consumption

India’s mass consumption story, particularly in rural regions and among lower-income urban households, is showing early signs of recovery. This improvement is being driven by a combination of favorable agricultural conditions, steady rural incomes, and targeted government support measures.

A strong crop cycle has helped stabilize farm incomes, while higher state-level transfer payments to women in lower-income households have boosted spending capacity. In addition, indirect tax reductions have benefited essential consumption items, supporting demand at the lower end of the income spectrum.

Uneven Consumption Across Income Groups

While overall consumption is improving, the recovery remains uneven across income groups. Affluent consumers, including middle- and high-income households, experienced strong spending growth in the post-pandemic period. However, this segment is now showing signs of moderation as pent-up demand fades.

Middle-income households face specific challenges related to job creation and structural changes in the labor market. Concerns around automation and the growing use of artificial intelligence have added to uncertainty, affecting consumer confidence and discretionary spending decisions.

Government Policy Focus on Consumption

On the fiscal front, the central government adjusted its approach in FY26 by moderating fiscal consolidation efforts. Instead, it placed greater emphasis on supporting household consumption through targeted income tax and consumption tax reductions. These measures helped sustain demand and contributed to robust real economic growth.

As a result, India recorded strong real GDP growth of 7.6 percent on a year-on-year basis in calendar year 2025. However, nominal GDP growth slowed to a six-year low outside the pandemic period, largely due to subdued inflation levels.

Outlook Remains Cautiously Optimistic

Looking ahead, India’s growth outlook remains cautiously optimistic. Strong domestic fundamentals, supportive policy measures, and a gradual recovery in consumption provide a solid base. However, timely resolution of the India–US trade agreement will be critical in minimizing external risks and sustaining momentum in the medium term.