New Delhi: Amidst global volatility and geopolitical tensions, the Reserve Bank of India (RBI) has expressed "cautious optimism." The May 2025 RBI Bulletin states that India will remain the fastest-growing major economy in the world and is on track to surpass Japan this year to become the world's fourth-largest economy.
In its 'State of the Economy' article, the RBI stated, "Inflationary pressures have largely subsided and are projected to stabilize in line with the target by fiscal year 2025-26. A bumper rabi harvest and the prospect of a normal or above-normal monsoon will bolster rural demand and help keep food inflation in check."
Economic Stability and Investor Confidence
The RBI highlighted that India's economy is secured by monetary, fiscal, and political stability. Elements such as transparency, clarity, and continuity in policymaking make India attractive for investment and growth.
The bulletin also noted that India is emerging as a "connector country" amidst global trade realignment and shifts in industrial policy, particularly in sectors like technology, digital services, and pharmaceuticals. The recently concluded Free Trade Agreement (FTA) with the UK is a b indication of this trend.
India-Pakistan Tensions Cause Market Volatility
However, heightened tensions between India and Pakistan led to significant volatility in financial markets for a period. The India VIX spiked sharply, but the situation improved as tensions eased and domestic inflation softened.
According to the RBI, "Sentiment in domestic financial markets has improved, attributable to easing India-Pakistan tensions, an improving global trade outlook, and softening domestic inflation."
Significant Shift in Investment Landscape
A noteworthy development is that the ownership by domestic institutional investors (DIIs) surpassed that of foreign portfolio investors (FPIs) in Nifty-500 companies by March 2025. This suggests a structural shift in Indian stock markets, with DII investors such as mutual funds and insurance companies providing greater stability.
The RBI also indicated that policy initiatives undertaken since January 2025 have improved liquidity conditions and stabilized financial markets.
Considering all these indicators, it's clear that India is not only weathering global economic storms but is also poised to capitalize on emerging opportunities. Strong macroeconomic fundamentals, a consistent policy framework, and investor confidence are positioning India as a key engine of global growth.
