While the Indian economy was not fully immune to the external sector headwinds, coordinated fiscal, monetary and regulatory policies have helped to build resilience in 2025, according to note in the Reserve Bank of India’s December Bulletin.
Demand conditions have remained robust of late, with indicators of urban demand strengthening further, the report on “State of the Economy” said.
High-frequency indicators for November have shown that the economic activity has held up, ir said, adding that the services sector continued to register strong expansion, while manufacturing showed some signs of deceleration.
In Q2FY26, GDP grew 8.2%, the highest since Q4FY24 on the back of robust private consumption and fixed investment. The growth in private consumption was sustained by a robust rural demand and easing inflationary pressures. However, net exports continued to be a drag on growth.
During November, overall demand conditions remained robust and indicators of urban demand strengthened further, building up on the festival season pick-up. The report underlined that global uncertainty continued to moderate in November.
Net FDI negative in Oct
The report highlighted that during April-October 2025, FDI remained higher than last year both in gross and net terms. Gross inward FDI remained steady in October with Singapore, Mauritius and the US accounting for more than 70 % of total FDI inflows. Financial sector received the highest FDI at 60%, followed by manufacturing, electricity, and communication services. However, net FDI was negative in October (-$1.5 billion), mainly due to high repatriation and outward FDI.
ECB moderates
The report showed that registrations of external commercial borrowings (ECBs) moderated during April–October 2025 to $20.7 billion from $30.9 billion in the year ago period, reflecting a slowdown in offshore fund raising activity. In fact, net inflows from ECBs also stood lower than last year. A significant portion of the ECBs was mobilised for capital expenditure purposes.
Net FPI outflows were to the tune of $2.1 billion till December 16 this fiscal.
Current account deficit moderated in Q2FY26 over the same period last year, supported by a lower merchandise trade deficit, robust services exports and strong remittance receipts. However, net capital inflows fell short of current account financing requirements,
States’ finances
The report shows that states’ revenue expenditure remained healthy with y-o-y growth in H1 FY26, keeping in line with the spending behaviour of the past years. States have exhausted 40.6% of their budgeted revenue expenditure in H1:2025-26. Their capital expenditure grew at 5.5% during H1FY26.
During H1FY26, tax devolution to states recorded a growth of 14.2% on year, an article released with the bulletin noted. States’ revenue receipts posted a modest growth of 6.3% in H1FY26 partly due to the weak momentum in SGST collections.
Gross fiscal deficit of states in April-October this fiscal stood at 38% of the Budget Estimates for FY26, versus 47.1% in the year ago period. This was at a time the Centre’s fiscal deficit in the period was higher at 52.6% of the FY26 BE, as againsrt 46.5% in the year ago period.
Rupee depreciation
The rupee depreciated against the US dollar in November, pressured by the strengthening of the US dollar, muted foreign portfolio flows, and uncertainty surrounding the India-US trade deal. The report says the volatility of rupee as measured by the coefficient of variation, moderated in November from a month ago and remained relatively lower than most major currencies.
However, in real effective terms, the Indian rupee remained stable in November, as depreciation of the rupee in nominal effective terms was offset by higher prices in India vis-à-vis its major trading partners