Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday, 5 August said the Indian economy has held firm against persistent global headwinds, with high-frequency indicators pointing to steady domestic demand in the first quarter of 2026-27. His remarks came at the conclusion of the three-day Monetary Policy Committee (MPC) meeting in New Delhi.

Domestic Demand Holds Firm

Governor Malhotra noted that private consumption remained robust and investment continued to show resilience, supported by indicators across construction activity, capital goods, and bank credit. External demand also held up, he said, with healthy expansion in services exports complemented by a rebound in merchandise exports.

“External demand also sustained, as healthy expansion in services exports was complemented by a rebound in merchandise exports,” Malhotra said.

Global Risks and Monsoon Concerns

Despite the broadly positive domestic picture, Malhotra flagged that the turbulent global economic environment is likely to exert some pressure on domestic activity going forward. Energy prices and supply chain disruptions remain elevated and uncertain, he cautioned.

Notably, a deficient and uneven south-west monsoon amid El Nino conditions poses risks to the agriculture sector’s outlook and rural demand. “The adverse impact is being contained with various supply side measures. Even though the situation is still evolving, deficient and uneven south-west monsoon amidst El Nino conditions pose some risks to the agriculture sector’s outlook and rural demand,” Malhotra said.

Government initiatives on crop diversification — including short-duration and climate-resilient varieties — along with water harvesting and conservation measures, are expected to cushion the blow, he added.

Urban Demand and Investment Outlook

Malhotra said sustained momentum in services, the continuing impact of GST rationalisation, and broadly stable employment conditions should support urban demand. On the investment side, strong capacity utilisation, robust credit flow, and the government’s continued infrastructure push are expected to keep investment activity on track.

“Strong capacity utilisation, robust credit flow and the government’s continued thrust on infrastructure is expected to sustain investment activity. While services exports are expected to sustain, merchandise exports will be supported by the recent trade agreements and thrust on diversification,” he noted.

Inflation Path to Guide Policy Action

The Governor underscored that greater clarity on inflation — its trajectory and composition — is needed before any policy action is taken. He indicated that any rate recalibration would need to account for the evolving growth-inflation dynamic, particularly as underlying inflation has remained at relatively benign levels.

“There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action. Any such action would also have to consider the need for recalibration of policy rates in line with the evolving growth-inflation dynamics,” Malhotra explained.

Overall, growth continues to be underpinned by resilient domestic demand, sustained expansion in manufacturing and services, and robust exports — reinforcing India’s standing as the world’s fastest-growing major economy. The RBI’s next policy move will hinge on how the inflation and monsoon situations develop in the weeks ahead.