How accurate a picture of the Indian economy is RBI presenting?

The Indian economy persists as a vital force in global growth, supported by robust macroeconomic fundamentals and cautious policies, according to the Reserve Bank of India (RBI) in a statement released on Monday (June 30, 2025). In its biannual Financial Stability Report (FSR), the Central Bank noted that heightened uncertainties in global economic and trade policies are challenging the stability of the global economy and financial systems.

“Financial markets remain volatile, especially core government bond markets, driven by shifting policy and geopolitical environment. Alongside, existing vulnerabilities such as soaring public debt levels and elevated asset valuations have the potential to amplify fresh shocks,” the RBI said.

Indian economy: Against all odds

Despite a turbulent global economic environment, the RBI insisted that the Indian economy continued to drive global growth, “underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies”.

“The domestic financial system is exhibiting resilience fortified by healthy balance sheets of banks and non-banks. Financial conditions have eased, supported by accommodative monetary policy and low volatility in financial markets. The strength of the corporate balance sheets also lends support to overall macroeconomic stability,” the RBI said.

The report highlights that scheduled commercial banks (SCBs) demonstrate strength and resilience, supported by strong capital reserves, historically low non-performing loan ratios, and solid profitability. Macro stress test results confirm that most SCBs maintain sufficient capital buffers above regulatory requirements, even in severe stress scenarios. The resilience of mutual funds and clearing corporations is also validated by stress tests, the report added.

Fact-checking RBI's assertion

Indian economy as a key driver of global growth

• RBI claim: The Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent policies.
• Verification:
• GDP growth: The National Statistical Office (NSO) estimated real GDP growth at 7.4% for Q4 2024-25, up from 6.4% in Q3, indicating resilience despite a slowdown to 6.0% in H1 2024-25. The RBI projects 6.6% growth for 2024-25, supported by rural consumption, government spending, and service exports.

• Global context: The International Monetary Fund (IMF) projected global growth at 3.2% for 2024, while the World Bank estimated 2.6%, suggesting India’s growth rate significantly outpaces the global average. This supports the RBI’s claim of India’s role in global growth.

• Critical note: While India’s growth is strong, global risks like geopolitical tensions, trade policy uncertainties, and external spillovers (e.g., U.S. tariffs or commodity price shocks) could dampen this contribution. The RBI acknowledges these risks, which align with the IMF and World Bank concerns about global economic fragmentation.

The claim is largely truthful, as India’s growth rate is robust compared to global peers, but its global impact depends on mitigating external risks, which the RBI may underemphasize.

Sound macroeconomic fundamentals and prudent policies

• • RBI claim: India’s growth is supported by sound macroeconomic fundamentals and prudent macroeconomic policies.
  • Verification:
    • Fiscal metrics: The central government’s debt-to-GDP ratio is projected to decline from 62.7% in 2020-21 to 56.8% by 2024-25, indicating fiscal consolidation. States’ liabilities are also expected to decrease from 31% to 28.8% over the same period, reflecting prudent fiscal management.

• Inflation: The RBI notes a benign inflation outlook, with food inflation softening due to a bumper kharif harvest and strong rabi crop prospects. This aligns with Governor Sanjay Malhotra’s statement that inflation is durably aligning with the RBI’s target (around 4%). However, risks from weather events and geopolitical conflicts could drive commodity price volatility.

• Monetary policy: The RBI’s 50-basis-point repo rate cut to 5.50% in June 2025 reflects an accommodative stance to spur growth, supported by low financial market volatility. This aligns with the claim of prudent policy.

• Critical note: While fiscal and monetary policies appear sound, rising household debt (42.9% of GDP in June 2024) and concerns about digital personal loans’ overdue accounts suggest potential vulnerabilities. The RBI’s focus on macroeconomic stability may downplay these micro-level risks.

The claim is mostly accurate, as fiscal and monetary indicators support stability, but the RBI’s optimism may overlook emerging risks in household debt and digital lending.

Resilience of the financial system

• • RBI claim: The domestic financial system is resilient, with healthy balance sheets of banks and non-banks, robust capital buffers, low non-performing loans (NPLs), and strong earnings.
  • Verification:
    • Banking sector: The gross non-performing asset (GNPA) ratio for scheduled commercial banks (SCBs) reached a multi-decadal low of 2.3% in March 2025, down from 2.6% in September 2024 and 2.8% a year earlier. The capital-to-risk-weighted-assets ratio (CRAR) stood at 17.2% in March 2025, well above the regulatory minimum, with stress tests confirming resilience even under adverse scenarios (CRAR projected at 14.2–14.6% in severe stress).

• Non-Banking Financial Companies (NBFCs): NBFCs are described as healthy with sizable capital buffers and improving asset quality. However, loan growth moderated to 6.5% in H1 2024-25 due to RBI’s prudential risk-weight increases, indicating regulatory caution.

• Insurance sector: The consolidated solvency ratio of the insurance sector exceeds the minimum threshold (150% per IRDAI), supporting the RBI’s claim of stability.

• Stress tests: An IMF technical assistance mission in April 2023 evaluated the RBI’s stress test models as “strong and well-developed,” though it recommended improvements in credit and market risk assessments. This validates the RBI’s stress testing but suggests room for refinement.

• Critical note: Despite strong metrics, the RBI flags concerns about digital personal loans, which have the highest share of overdue accounts, and a sharp rise in write-offs by private sector banks, potentially masking asset quality issues. This indicates that resilience may not be uniform across all segments.

The claim is largely truthful, as banking and NBFC metrics show strength, but risks in digital lending and write-offs warrant caution, which the RBI acknowledges but may not fully emphasize.

Global economic uncertainties and financial market volatility

• • RBI claim: Elevated economic and trade policy uncertainties test global economic resilience, with volatile financial markets driven by policy shifts and geopolitical tensions.
  • Verification:
    • Global risks: The RBI’s concerns align with global reports. The IMF and World Bank highlight risks from high public debt, stretched asset valuations, geopolitical tensions, and cyber threats. Equity valuations are elevated, with high price-to-earnings ratios globally and in India, increasing vulnerability to market corrections.

• Market volatility: The RBI notes volatility in core government bond markets, consistent with global trends where policy shifts (e.g., U.S. monetary tightening) and geopolitical events (e.g., U.S. strikes on Iran’s nuclear sites) have raised uncertainty.

• • • Critical note: The RBI’s assessment of global risks is consistent with external sources, but its focus on India’s resilience may understate how external shocks could impact domestic markets, especially given India’s exposure to global trade and capital flows.

The claim is accurate, as global uncertainties are well-documented, and the RBI’s assessment aligns with international analyses.

Overall assessment of truthfulness

The RBI’s June 2025 FSR presents a largely truthful and data-supported assessment of India’s economic and financial stability. Key claims about GDP growth, macroeconomic fundamentals, financial system resilience, and global uncertainties are corroborated by NSO data, IMF/World Bank projections, and stress test results. The banking sector’s low GNPA ratio (2.3% in March 2025), robust capital buffers (CRAR at 17.2%), and fiscal improvements (debt-to-GDP at 56.8%) provide strong evidence for the RBI’s optimism.

However, the report may exhibit selective optimism by downplaying emerging risks:

• Digital lending: The rise in overdue accounts for digital personal loans and potential asset quality issues in private banks (due to write-offs) suggests vulnerabilities not fully emphasised.

• External risks: While the RBI acknowledges global uncertainties, it may understate their potential impact on India, given the country’s reliance on global trade, energy imports, and capital flows.
• Household debt: The increase in household debt to 42.9% of GDP, though lower than other emerging markets, is a growing concern that requires closer monitoring.

Limitations

• Data lag: Real-time data for Q2 2025 is limited, and projections (e.g., GNPA rising to 2.6% by March 2027) rely on assumptions that may not account for unforeseen shocks.
• Bias consideration: As a central bank, the RBI has an interest in projecting stability to maintain public confidence, which may lead to a more positive framing of risks.
• External validation: The IMF’s 2023 review of RBI’s stress tests supports their robustness but suggests improvements, indicating that while the RBI’s methodology is sound, it is not infallible.

The RBI’s June 2025 FSR is largely truthful, with claims supported by credible data and aligned with global economic analyses. India’s strong growth, fiscal consolidation, and financial sector resilience are well-evidenced. However, the report may underplay risks in digital lending, household debt, and external shocks, which could affect its comprehensiveness. For a complete picture, cross-referencing with independent sources like IMF reports and market data is advisable.