Mumbai: Global headwinds, including trade and policy uncertainties, continued to weigh on the Indian economy in the ongoing quarter, leading to foreign portfolio outflows. However, economic growth has been resilient on the back of domestic policy and regulatory support, according to the Reserve Bank of India (RBI).

As such, global volatility and uncertainty eased slightly in November from their earlier elevated levels, with global economic activity expanding at a steady rate, the central bank said in its State of the Economy report, released as part of the December bulletin.

The Indian economy posted a six-quarter high GDP growth of 8.2% for Q2 FY26, reflecting "remarkable resilience amidst persistent global trade uncertainties", RBI said, attributing the growth to domestic drivers, especially private consumption demand and fixed investment.

"High-frequency indicators for November suggest that overall economic activity held up. Demand conditions remained robust, with indicators of urban demand strengthening further," the note said, adding that while services sector activity remained robust, manufacturing showed some signs of deceleration.

The Monetary Policy Committee (MPC) unanimously cut the policy repo rate by 25 bps to 5.25%, taking the cumulative rate cut since February 2025 to 125 bps.

"The Indian economy was not fully immune to the external sector headwinds," the report said, adding that coordinated fiscal, monetary and regulatory policies, strong domestic demand and benign inflation have supported growth.

The central bank also highlighted the risks posed by the impending tariffs that Mexico is imposing on India. On 11 December, Mexico imposed higher import duties ranging from 5-50% on 1,400 products imported from countries without a free trade agreement.

Mexico is India's major export destination for three sub-segments of engineering goods, namely, two and three-wheelers, motor vehicles/cars and auto components and parts, the RBI report said, adding that Mexico accounted for 5-12% of the total exports of India in these sectors during FY25. "As India does not have a trade agreement with Mexico, tariffs on Indian exports of these goods are set to increase from 20-50% from 1 January 2026."

Continued focus on macroeconomic fundamentals and economic reforms should help unlock efficiencies and productivity gains to maintain the economy on a high-growth trajectory amidst a rapidly changing global environment, it said.

CPI inflation for November 2025 rose slightly to 0.71% from 0.25% in October, partly due to vegetable price hikes, even as food inflation remained negative for the sixth straight month. The headline figure was below RBI's inflation targeting band of 2-4%.

"Notwithstanding a sharp uptick in real GDP growth in Q2, the nominal GDP registered a four-quarter low growth of 8.7%. The narrowing of the gap between nominal and real GDP growth reflected the moderation in the GDP deflator to a low of 0.5%," the report said. The GDP deflator measures price changes in an economy by comparing Nominal GDP (current prices) to Real GDP (inflation-adjusted prices), showing how much of GDP growth is due to price increases.

While GST revenue collections were low due to GST rate rationalisation, other high-frequency indicators of economic activity, such as e-way bills, petroleum consumption and digital payments, registered a pick-up in growth in November, indicating a rise in goods movement and freight activity, and a pick-up in construction and agricultural operations, the report said, adding that urban demand was also robust.

In the 5 December policy statement, RBI revised the FY26 growth projection upward by 50 basis points to 7.3%. The CPI inflation projection for FY26 was revised downward by 60 bps to 2.0%.