Integrated Annual Report 2025-26 98 Given the current Middle East situation, global supply chains are undergoing recalibration. Merchandise exports are expected to face headwinds from elevated geopolitical risks, energy price volatility and disruptions in key trade corridors. Robust services exports, particularly in IT and business services, along with continued Government focus on strengthening bilateral and multilateral trade agreements, are expected to mitigate some of these challenges. The Reserve Bank of India (‘RBI’), at its Monetary Policy Committee (MPC) Meeting held in April 2026, has projected real GDP growth at 6.9% for FY27, underscoring India’s relative economic resilience anchored in strong domestic demand, particularly sustained rural consumption. At the same time, the growth outlook is subject to downside risks arising from global trade headwinds, elevated energy prices and heightened geopolitical uncertainties. Union Budget FY27 maintained a balanced and pragmatic approach to navigating a complex global and domestic macroeconomic environment. Continued emphasis on fiscal discipline alongside targeted support measures is expected to sustain macro stability. Measures aimed at strengthening household consumption, including continuation of tax relief measures announced earlier, are likely to support discretionary spending in the near term. Budgetary thrust on the four identified engines of growth i.e. Agriculture, MSMEs, Investment and Exports along with sustained public capital expenditure, is expected to reinforce medium-term growth momentum. With policy support from the Union Budget and the RBI’s accommodative-biased liquidity management to ensure orderly financial conditions, India’s consumption-led growth story is expected to remain resilient. While external risks persist, strong fundamentals, improving income visibility and steady rural and urban demand are expected to support progress towards the country’s growth objectives over FY27. Economic Overview The global economy witnessed a moderation in growth momentum during the Calender Year (‘CY’) 2025 amid heightened geopolitical disruptions and commodity related supply shocks. The International Monetary Fund (IMF) in its April 2026 outlook revised global growth for CY26 downward to around 3.1%, reflecting the impact of the Middle East conflict, elevated commodity prices and renewed trade uncertainties. Growth is expected to remain modest in CY27 at about 3.2%, with downside risks dominating the outlook. Global inflation, which had softened through 2024 and much of 2025, is projected to edge higher in CY26 to about 4.4%, largely due to higher energy and logistics costs, before resuming a gradual decline thereafter. The re‑emergence of supply‑driven inflation pressures could delay or temper the pace of monetary policy easing across major economies. The U.S. Federal Reserve (‘Fed’) undertook cumulative rate cuts through CY25 as disinflation gained traction, supporting financial conditions during the year. However, heightened geopolitical tensions and concerns over energy price pass‑through led the Fed to pause further easing in early CY26 while maintaining a data‑dependent stance. The U.S. Dollar Index (DXY), which weakened during CY25 on expectations of policy easing, experienced intermittent strength in CY26 amid safe‑haven flows triggered by geopolitical uncertainty and global risk aversion. Volatility in currency and capital markets has, consequently, remained elevated. India’s economic growth has continued to demonstrate resilience despite a challenging external environment. RBI estimated real GDP growth for FY26 at about 7.6%, supported by strong private consumption, steady investment activity and robust services sector performance. Inflation remained largely benign for most of the year, though recent energy price pressures have increased upside risks. The financial sector continues to remain stable, with non‑performing asset ratios at multi‑year lows and adequate capital buffers. Fiscal consolidation has progressed in line with medium‑term objectives, while the current account deficit has remained manageable, aided by sustained growth in services exports. In CY25, the RBI reduced the policy repo rate cumulatively by 125 bps to 5.3%, marking one of the most significant easing cycles in recent years. In its April 2026 policy review, the Monetary Policy Committee maintained the repo rate unchanged and retained a neutral stance, citing rising external uncertainty and inflation risks stemming from higher crude prices. While monetary policy transmission has been visible across lending and deposit rates, the RBI has shifted focus towards liquidity and financial stability management. It has continued to deploy liquidity tools such as Open Market Operations, variable rate operations and forex market interventions to ensure orderly market conditions and adequate credit flow. The Indian Rupee experienced heightened volatility during FY26 amid global risk aversion, elevated crude prices and intermittent capital outflows. While the currency came under pressure during periods of global uncertainty, India’s
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