RBI Bulletin: India’s Economy Accelerates in Q2 FY26

India’s economy grows at fastest pace in six quarters, RBI bulletin shows

New Delhi: India’s economy expanded at its fastest pace in six quarters during the second quarter of FY26, supported by resilient domestic demand and stable financial conditions, according to the Reserve Bank of India’s December 2025 Bulletin. The central bank said the recovery gained traction even as global uncertainty eased from earlier elevated levels.

In its State of the Economy assessment, the RBI noted that high-frequency indicators for November pointed to firm overall activity, with demand holding up across key sectors. While headline consumer price inflation edged up sequentially, it remained below the lower tolerance threshold, offering reassurance on price stability.

The RBI added that financial conditions stayed benign during the quarter, with strong credit flows to the commercial sector reflecting sustained appetite for both investment and consumption financing. Together, these trends indicate that the economy has regained momentum after moderating earlier in the fiscal year.

External balances strengthen as current account deficit narrows

On the external front, the Bulletin highlighted an improvement in India’s current account position in Q2 FY26 compared with the same period last year. The narrowing of the current account deficit was driven by a lower merchandise trade gap, along with robust services exports and steady remittance inflows.

Globally, the RBI observed that equity markets experienced intermittent volatility due to valuation concerns, but broader uncertainty indicators continued to retreat. This easing of global stress, combined with stable domestic fundamentals, helped support India’s macroeconomic resilience during the quarter.

Fiscal position steady, capital spending remains a focus

A separate article in the Bulletin reviewing government finances for 2025–26 found that the Centre’s receipts during the first half of the year were broadly in line with Budget estimates. Moderation in tax revenues was offset by stronger non-tax revenues and non-debt capital receipts.

Revenue expenditure remained contained, while capital expenditure growth stayed consistently strong, reinforcing the government’s focus on asset creation. At the state level, revenue receipts rose from both tax and non-tax sources, even as central grants declined. Despite this, states maintained revenue spending and recorded improvements in capital outlay, indicating better expenditure quality.

New indicator introduced to track manufacturing cycle

The RBI also unveiled a new Composite Leading Indicator for manufacturing gross value added, aimed at identifying turning points in the manufacturing cycle. Developed using a growth-rate-cycle approach and machine learning techniques such as Random Forest and XGBoost, the indicator is designed to lead manufacturing growth by one quarter.

According to the central bank, the indicator has performed well across both pre-pandemic and post-COVID periods, drawing on variables including domestic demand, inflation trends, credit flows, business sentiment and global conditions.

Safe-haven assets analysed amid geopolitical risks

Another analytical study in the Bulletin examined how traditional safe-haven assets behave during periods of heightened geopolitical risk. The RBI found crude oil prices to be the most sensitive to such shocks, while gold continued to demonstrate relative price stability. Silver and US Treasuries showed moderate responses.

The study noted that neural network–based models incorporating country-specific geopolitical risk indices outperformed conventional econometric models in forecasting asset volatility.

Views not binding on policy

The RBI clarified that the views expressed in the Bulletin’s analytical articles reflect those of the authors and do not constitute the central bank’s official policy stance.

Overall, the December Bulletin presents a picture of an economy gaining momentum, with accelerating growth, manageable inflation, improving fiscal metrics and stronger external balances. Such conditions often influence investor confidence and long-term planning decisions, including cross-border considerations like business setup in dubai as companies assess global expansion strategies against a backdrop of domestic economic strength.