The Reserve Bank of India declared on Friday that the domestic economy withstood global turbulence to deliver strong GDP growth in the first quarter of 2026-27. This resilience held firm even as the West Asia conflict escalated, sending crude oil prices soaring and threatening supply chains. The central bank’s latest bulletin highlighted that high-frequency indicators through August showed sustained demand across industry and services sectors.
Liquidity is the story here. A massive $133 billion in FCNR(B) deposits flooded the system, creating a surplus that RBI says will fuel ongoing credit growth. Bank deposits grew at their fastest pace in 15 years in August, tempering the incremental credit deposit ratio. While the rupee saw brief gains in early September due to these inflows, those benefits evaporated later in the month as crude prices climbed again.
Foreign capital is flowing in, too. Net FDI surged 64% to $7.3 billion in July, riding on gross inflows that hit $14.6 billion. Communication, financial, and computer services grabbed over four-fifths of this equity money. Mauritius, the UAE, and the US accounted for roughly 70% of these inflows, signaling where global investors are parking their Indian bets.
Yet, the RBI cautioned that rising sovereign yields in major advanced economies are squeezing government finances. Geopolitical tensions and weather-related uncertainties remain the primary downside risks. For now, the financial sector draws strength from the real economy, but the margin for error is thinning.
Watch the next bond auctions closely. If global yields keep climbing, the pressure on domestic borrowing costs will intensify, potentially slowing the credit expansion the RBI is banking on.