RBI Annual Report 2025-26: How India’s Economy is Still Growing Despite Global Uncertainty

At a time when several major economies are slowing under the weight of inflation, war and financial uncertainty, India is moving in the opposite direction.

The Reserve Bank of India’s latest annual report says the country remained the world’s fastest-growing major economy even as global markets struggled with geopolitical tensions and rising volatility.

The report reveals how India is relying on strong domestic demand, government spending and active RBI intervention to stay resilient while the world economy weakens.

It also shows the growing risks underneath that resilience, including pressure on the rupee, volatile oil prices and a fragile global trade environment.

India GDP Growth Outlook

According to the RBI annual report, India’s economy grew 7.6% in FY2025-26, compared to 7.1% in the previous year. The central bank said domestic consumption and public investment remained the key drivers of growth despite worsening global conditions.

The RBI also noted that India continues to outperform several advanced and emerging economies facing weak consumer demand and slowing industrial activity.

Government infrastructure spending on roads, railways and construction projects helped sustain economic momentum throughout the year.

However, the central bank warned that external risks remain elevated. Weak global trade growth and geopolitical uncertainty could affect exports and investment flows over the coming months.

Global Risks Hit Markets

The RBI report repeatedly highlighted the impact of geopolitical tensions, especially the prolonged conflict in West Asia, on global financial markets and commodity prices.

Rising crude oil prices remain a major concern for India because the country imports most of its energy needs.

Higher oil prices increase import bills, widen trade deficits and create inflationary pressure inside the economy. The RBI also warned that climate-related disruptions, including possible El Niño effects, could hurt food production and push prices higher.

These global shocks are already affecting financial markets. Investors have become more cautious worldwide, increasing pressure on emerging market currencies including the Indian rupee.

Rupee Pressure And Reserves

India’s foreign exchange reserves fell to $681.4 billion for the week ending May 22, 2026, according to RBI. The decline reflects heavy central bank intervention to protect the rupee from excessive volatility.

During recent market pressure, the rupee weakened to a record low near 96.96 against the US dollar before RBI action stabilised the currency. Economists say global dollar strength, higher crude prices and foreign capital outflows contributed to the pressure.

The RBI’s annual report showed that gains from foreign exchange transactions rose 52% to ₹1.69 trillion in FY26 from ₹1.11 trillion a year earlier. Analysts believe the surge reflects increased currency market operations by the central bank.

RBI Balance Sheet Expansion

The report also revealed that the RBI’s balance sheet expanded 20.61% to ₹91.97 trillion during FY26. A major reason was the increase in foreign exchange operations and liquidity management measures taken during volatile market conditions.

At the same time, the RBI transferred a record ₹2.87 trillion surplus to the central government. The payout is expected to strengthen government finances and provide additional fiscal room for infrastructure spending and welfare programmes.

The RBI also increased its gold reserves as part of a broader diversification strategy. India’s gold holdings reached 880.52 metric tonnes by March 2026, reflecting a global trend among central banks seeking protection from geopolitical and currency risks.

India Economy Resilience Story

Despite multiple external shocks, the RBI believes India’s economic fundamentals remain relatively strong.

Domestic demand has stayed resilient, banks are healthier than they were a few years ago and government-led investment continues to support growth.

But the report also makes it clear that resilience does not mean immunity. India remains vulnerable to imported inflation, oil price spikes and global market volatility.

The challenge for policymakers now is maintaining growth without exhausting foreign exchange reserves or triggering inflation pressures.

For now, India appears better positioned than many large economies facing slowdown fears. Yet the RBI’s latest assessment shows that sustaining that advantage will require careful management in an increasingly unstable global environment.

Also Read: Why India’s Forex Reserve Buffer is Under Growing Pressure?