New Delhi: India's economy is gaining momentum even as the global environment remains unsettled, the Reserve Bank of India (RBI) said in its latest State of the Economy report released on Monday.

After more than a year of rising uncertainty across global markets, October saw a mild retreat in volatility, the central bank said in the monthly report. It, however, cautioned that surging equity valuations abroad may be "outpacing fundamentals", and could eventually threaten financial stability.

"Global uncertainty remains elevated, although October witnessed a slight pullback after more than a year of continuous increase," the RBI said in the State of the Economy report, which is a part of its November bulletin.

It added that concerns persist about the heightened exuberance in global equity markets, raising questions about its sustainability and its implications for global financial stability.

As things stand, US equity valuations remain elevated, fuelled largely by robust tech-sector earnings and optimism around artificial intelligence.

According to Bloomberg data, the S&P 500 notched a record close of 6,890.89 on 28 October, 2025, while the Dow Jones Industrial Average hit an all-time high of 45,631.74 on 22 August, 2025.

The RBI said that amid the volatile global environment, the Indian economy appears more resilient, with high-frequency indicators signalling broad-based strength across manufacturing and services, driven by festive demand and the continuing effects of goods and services tax (GST) reforms.

"Available high-frequency indicators for October suggest a robust expansion in both manufacturing and services activities, supported by festive season demand and the ongoing positive impact of the GST reforms," the RBI said.

Manufacturing rebounds

India's manufacturing sector regained momentum in October after cooling to a four-month low in September, lifted by GST relief measures, improved productivity, and increased technology investments.

The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 59.2 in October, from 57.7 in September, 59.3 in August and 59.1 in July. The index stood at 58.4 in June, 57.6 in May, and 58.2 in April. A reading above 50 indicates expansion in activity.

India's services sector lost momentum in October, easing to a five-month low after hitting a 15-year peak in August, as growth in new business and output slowed amid softer export demand and rising global competition.

The HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 58.9 in October from 60.9 in September and 62.9 in August, marking its weakest pace since May. The index, however, has remained above the 50-point threshold separating expansion from contraction for over four years, signalling the sector's sustained resilience despite headwinds.

Meanwhile, in its latest State of the Economy report, the RBI noted that inflation has moderated to a historic low and remained well below the target rate.

"Financial conditions remained benign, and the flow of financial resources to the commercial sector increased significantly from a year ago," it added.

To be sure, India's retail inflation fell to a record low of 0.25% in October, down sharply from 1.44% in September, driven largely by a favourable base effect and a steeper decline in food prices.

This marks the third time in four months that Consumer Price Index (CPI) inflation has fallen below the Reserve Bank of India's 2–6% tolerance band. However, economists caution that the decline may be short-lived, with inflation expected to rise again as the base effect fades.