Resilient Economic Activity Amidst Global Uncertainties

The Reserve Bank of India (RBI) has expressed cautious optimism regarding the country's economic trajectory, acknowledging both global uncertainties and domestic pressures. The central bank's report highlights the resilience of economic activity, buoyed by promising kharif crop prospects and sustained momentum in the services sector, alongside modest industrial growth.

Challenges in Industrial and Demand-Side Indicators

Industrial activity has shown signs of weakening, with the Index of Industrial Production hitting a nine-month low in May. Demand-side indicators, including petroleum consumption and electricity use, have softened, alongside a deceleration in bank credit growth across key sectors.

Inflation and External Sector Vulnerabilities

Inflation pressures are resurging, with core inflation rising in June due to increased personal care costs and a rebound in onion prices. The RBI warns of the potential economic downturn associated with oil price surges. The external sector's fragility is evident from inadequate capital inflows to finance the current account deficit, leading to a significant fall in forex reserves.

Labor Market and Household Inflation Expectations

The labor market presents mixed signals, with high demand for MGNREGS jobs indicating rural employment stress. Meanwhile, household inflation expectations remain elevated, reflecting ongoing economic challenges.