RBI flags global risks but says strong domestic demand is keeping India steady

The Reserve Bank of India (RBI) today said the country’s economy is insulated from global jitters on the back of buoyant domestic demand, strong macroeconomic fundamentals, and prudent government policies. In its Financial Stability Report (June 2025) issued today, the RBI said the Indian economy is a key driver of global growth.

“Despite an uncertain and challenging global economic backdrop, the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies. Since India’s growth is mainly driven by buoyant domestic demand, it remains relatively insulated from global headwinds,” the RBI said in the report.

RBI observed that the Indian economy is expanding at a robust pace, and with inflation gradually easing, this is contributing to overall macroeconomic and financial stability. The domestic financial system remains strong, supported by the solid balance sheets of both banks and non-banking institutions.

“Financial conditions have eased, supported by accommodative monetary policy and low volatility in financial markets. The strength of corporate balance sheets also lends support to overall macroeconomic stability. While the economy and the financial system are relatively well positioned to withstand tariff‑induced shocks, risks from global spillovers and an escalation in geopolitical conflicts remain a key concern,” it added.

The report pointed out that elevated economic and trade policy uncertainties are testing the resilience of the global economy and the financial system. “Multilateral agencies have downgraded global growth forecasts, largely reflecting trade disruptions and heightened volatility. Financial markets remain volatile, especially core government bond markets, driven by the shifting policy and geopolitical environment,” it said.

The report also underlined soaring public debt levels. “Alongside, existing vulnerabilities such as soaring public debt levels, excessive risk‑taking in the non‑banking financial sector, and elevated asset valuations have the potential to amplify fresh shocks. As countries confront varying trade‑offs between growth and inflation, monetary authorities are charting divergent policy trajectories,” the report said.

“Emerging‑market economies face significant challenges from headwinds emanating from escalating trade tensions, prolonged and intensified geopolitical tensions, and spillovers from advanced economies,” the report added.