The Indian economy demonstrated notable resilience in November, with high-frequency indicators pointing to sustained activity and robust demand, according to a recent report from the Reserve Bank of India (RBI). This positive momentum persists even as headline Consumer Price Index (CPI) inflation experienced a slight uptick, though it remained comfortably below the central bank's lower tolerance threshold.
Benign Inflation Supports Competitive Pricing
Published on Monday, the RBI's state of the economy report provided a detailed analysis of current conditions. It noted that benign inflation during the month helped keep input cost pressures low for firms. This environment allowed businesses to limit hikes in selling prices, enabling them to maintain competitive pricing in global markets.
The report specifically highlighted the services sector, where the Purchasing Managers' Index (PMI) showed a continued deceleration in both input and selling prices. This trend is attributed to receding cost pressures and concerted efforts by companies to secure new business in a competitive landscape.
Building Resilience Amid External Challenges
While acknowledging that the economy is not fully immune to external sector headwinds, the RBI credited coordinated fiscal, monetary, and regulatory measures for building significant resilience over the past year. The report stated that economic growth has been robust, bolstered primarily by strong domestic demand.
A favorable inflation outlook has provided the Monetary Policy Committee with adequate space to continue supporting growth through its policy stance. The RBI emphasized that a continued focus on macroeconomic fundamentals and further economic reforms will be crucial. These efforts are expected to unlock efficiencies and productivity gains, helping to firmly keep the economy on a high-growth trajectory amidst a rapidly changing global environment.
Global Uncertainties and Market Sentiment
The report also cast a glance at the international scene, noting that spillovers from global trade and tariff policies on financial flows and supply chains are still unfolding. These dynamics are creating heightened global uncertainties and concerns about the prospects for worldwide growth.
On financial markets, equity indices remained ebullient for much of the year, driven largely by optimism surrounding Big Tech companies. However, the RBI observed that valuation worries have recently triggered some risk-off sentiments. This shift in mood has contributed to a slowdown in portfolio flows to emerging markets, including India.
In summary, the RBI's assessment presents a picture of an Indian economy holding its ground, powered by internal demand and managed inflation, even as it navigates a complex and uncertain global landscape.
