The Reserve Bank of India has announced that the nation's economy is demonstrating significant momentum despite ongoing instability in the global economic landscape. This assessment comes from the central bank's latest State of the Economy report published on Monday.
Global Uncertainty and Domestic Resilience
According to the RBI's analysis, global uncertainty remains elevated, although October witnessed a slight reduction in volatility after more than a year of continuous increase. The central bank expressed concerns about surging equity valuations in international markets, suggesting they might be "outpacing fundamentals" and potentially threatening global financial stability.
The report highlighted that US equity valuations remain particularly high, driven by strong technology sector earnings and optimism surrounding artificial intelligence. The S&P 500 reached a record close of 6,890.89 on October 28, 2025, while the Dow Jones Industrial Average hit an all-time high of 45,631.74 on August 22, 2025.
India's Economic Strength Across Sectors
In contrast to global uncertainties, the Indian economy appears more resilient, with high-frequency indicators showing broad-based strength across both manufacturing and services sectors. This robust performance is attributed to festive season demand and the continuing positive effects of GST reforms.
India's manufacturing sector regained momentum in October after cooling to a four-month low in September. The revival was supported by GST relief measures, improved productivity, and increased technology investments.
The HSBC India Manufacturing Purchasing Managers' Index climbed to 59.2 in October, up from 57.7 in September, indicating significant expansion in manufacturing activity.
Meanwhile, India's services sector experienced some moderation, easing to a five-month low in October after hitting a 15-year peak in August. The HSBC India Services PMI fell to 58.9 in October from 60.9 in September. Despite this slowdown, the sector has remained above the 50-point expansion threshold for over four years, demonstrating sustained resilience.
Inflation Trends and Financial Conditions
The RBI report noted that inflation has moderated to historic lows, remaining well below the target rate. India's retail inflation dropped to a record low of 0.25% in October, down sharply from 1.44% in September, primarily driven by a favorable base effect and steeper decline in food prices.
This marks the third time in four months that Consumer Price Index inflation has fallen below the Reserve Bank of India's 2-6% tolerance band. However, economists caution that this decline might be temporary, with inflation expected to rise again as the base effect diminishes.
The central bank also reported that financial conditions remained favorable, with the flow of financial resources to the commercial sector increasing significantly compared to the previous year.
