The global economy is confronting a fragile geopolitical environment and continuing trade-related uncertainties. Nevertheless, the domestic economy has demonstrated notable resilience to the ongoing global headwinds, characterised by buoyant domestic demand, and rising manufacturing and services activity. The south-west monsoon picked up in July after recording a deficit in June. While headline CPI inflation rose fractionally, reflecting food inflation; core inflation remained stable. Liquidity conditions eased, supporting credit growth and ongoing investment activity. Foreign capital inflows rebounded, reinforcing the external sector. Introduction The global economy is navigating through a fragile and uncertain environment shaped by geopolitical and trade-related uncertainties. The temporary ceasefire in West Asia proved to be short-lived, with occasional hostilities resuming in July. The West Asia conflict remains a challenge to the supply chains of oil and other key commodities, and is weighing on business confidence. The new US tariffs compounded the uncertainty to international trade. Despite this, the global economy is expanding, though with inflationary pressures. Globally, equity markets gained in August, supported by the strong corporate performance of major technology companies. Emerging market equities recovered from their lows in July. Geopolitical tensions and the Federal Open Market Committee (FOMC) meeting decision drove an uptick in US 10-year treasury yield in July, and it rose further to an 18-month high by around mid-August. The US dollar index registered a steep fall post the FOMC announcement and continued to weaken thereafter. The flows to emerging market equities declined further in July, but increased overall on bond inflows. Inflation picked up in a few major economies, reflecting the rising energy and commodity prices. Central banks’ policies remained divergent across economies but mostly vigilant to the inflation risks. The Indian economy continued to display strength notwithstanding these headwinds. Domestic demand remained buoyant, as reflected by several indicators, including vehicle and tractor sales. Petroleum product consumption growth returned to positive territory, after three straight months of contraction. Industrial production strengthened sharply in June, recording its strongest growth in nearly two years, supported by a broad-based acceleration in manufacturing. The services sector also exhibited resilience. Both merchandise exports and imports grew strongly in July 2026 with exports growing at a four-month high (in 2026-27 so far). Merchandise trade deficit widened in July, both sequentially and on a year-on-year (y-o-y) basis, reflecting a widening of deficit in electronic goods. The pick-up in monsoon activity during July supported kharif sowing, taking it closer to the previous year’s level. Backed by a high stock of public foodgrains, the government has also announced an Open Market Sales Scheme for the current financial year to augment supply. The headline consumer price index (CPI) inflation increased marginally in July driven by ‘food and beverages’. Core (CPI excluding food and fuel) inflation excluding precious metals remained moderate. The Monetary Policy Committee in August 2026, unanimously decided to keep the policy repo rate unchanged at 5.25 per cent. It also retained a “neutral” stance while waiting for more clarity amidst uncertain outlook.1 The Centre’s fiscal deficit increased marginally during Q1:2026-27 as compared to the previous year accompanied by higher capital expenditure. The gross fiscal deficit of the states has been lower during the same period. System liquidity improved in July and August. The liquidity surplus narrowed in the second half of July on account of tax outflows, but it went up in August on account of drawdown of the government cash balances and measures taken to attract capital inflows. Overnight money market rates softened towards end-July and August. While yields on 3-month treasury bills remained largely range-bound, those on commercial papers (CPs) and certificate of deposits (CDs) softened. The 10-year G-sec yields briefly hardened in July, reflecting renewed geopolitical tensions in West Asia, volatile crude oil prices, and higher US treasury yields. While the yields softened in early August, driven by robust capital inflows under the Reserve Bank’s swap facilities, they subsequently reversed course and firmed up with rising crude oil prices. Non-food credit growth continued to remain healthy. Indian equity markets gained in July and early August, supported by resilient corporate earnings and a rebound in net buying by foreign portfolio investors. Net foreign direct investment (FDI) flows improved in June from the preceding month, supported by higher gross inflows. Foreign portfolio investment (FPI) witnessed sustained net inflows since June 2026. In July, foreign portfolio investors turned net buyers in equity segment, reversing four consecutive months of outflows. Net inflows under non-resident deposits improved during June as compared to the previous month, driven by an increase in Foreign Currency Non-Resident (Banks) [FCNR(B)] deposits on account of policy measures. India’s foreign exchange reserves remain comfortable. The remainder of the article is presented in four sections. Section II covers the evolving developments in the global economy. Section III provides an assessment of domestic macroeconomic conditions. Section IV presents the financial conditions prevailing in India, while Section V offers concluding observations. II. Global Section Global uncertainty has been moderating for the fourth consecutive month aided by the de-escalation of tension between the US and Iran. Geopolitical Risk Index has also fallen sharply (Chart II.1a). Financial market volatility eased in emerging market economies (EMEs) in August with the easing of crude oil prices. Volatility in advanced economies (AEs) also moderated in August underpinned by relatively stronger economic fundamentals. It, however, witnessed a marginal uptick in mid-August due to inflation concerns and uncertainty in West Asia (Chart II.1b). Traffic through the Strait of Hormuz remained subdued and well below the pre-conflict levels amidst occasional collapse of the US-Iran peace agreement (Chart II.2). Global output, as reflected by the composite PMI, continued to expand in July, with its strongest reading since the onset of West Asia conflict. Both manufacturing and services sectors registered expansion with services sector outperforming marginally supported by resilient consumer spending. PMI export orders, however, continued to soften with new services export orders contracting for the fifth consecutive month (Table II.1). The business activity expanded at a faster pace in AEs in July contrary to the earlier months, partly supported by services and equipment spending.2 Despite sequential moderation, India and China outperformed other major EMEs (Chart II.3a). While new export orders remained subdued in the US and Eurozone, it expanded in the UK and Japan among AEs and China, India, and South Africa within EMEs (Chart II.3b).
Commodity prices exhibited mixed trend in July. Volatile brent crude futures reflected fast evolving geopolitical developments with futures prices firming up in August (Chart II.4a). Low global oil inventories and pick-up of Chinese imports also contributed to the pressure on prices (Chart II.4b).3 The Food and Agriculture Organisation’s (FAO) Food Price Index edged up in July, driven by sugar, cereals, and vegetable oils, offsetting the decline in meat and dairy prices. The World Bank Commodity Price Index, however, moderated, reflecting lower metals and fertiliser prices. Gold price declined in July alongside a stronger US dollar and elevated US treasury yields. However, it rose subsequently in August (till 20th) following weaker-than-expected US non-farm payroll data and lower expectations of Fed rate hikes (Chart II.5a and b).  Following renewed tensions in West Asia, aluminium prices increased in early-August due to constrained supply and low inventories. Aluminium prices fell sharply later during the month after reaffirmation of restoration of smelting capacity by Gulf producers (Chart II.6a). Jet fuel prices also stayed elevated due to reduced refinery production from major gulf-region and Asian jet fuel exporters (Chart II.6b).4 Urea prices rose in July amidst renewed supply fears but moderated in August (Chart II.6c). Global LPG prices remained volatile with US Gulf coast trade flows, West Asia trade route disruptions and crude oil price movements shaping the market sentiments (Chart II.6d).  Inflation across major AEs and EMEs remained above target in July. Among major AEs, inflation in the UK edged up on account of housing and household services; and in Japan due to higher energy prices. Inflation in the US softened for the second consecutive month as gasoline and fuel prices declined. In the Euro area, inflation reaccelerated, driven by higher energy prices and persistently elevated services inflation (Chart II.7a). Among EMEs, inflation remained stable in Russia and marginally softened in Brazil owing to lower food and beverages and housing prices. In China, easing gasoline and commodity prices contributed to further decline in inflation in July. In South Africa, it moderated due to lower food and fuel prices (Chart II.7b). Equity markets in major AEs remained volatile in July, with sentiments being driven by uncertainty surrounding the West Asia conflict, changing expectations of monetary policy, and developments around technology stocks. The S&P 500 witnessed some selling pressure in technology stocks in early July; however, strong corporate earnings from major technology companies subsequently eased concerns. The index rose in August as weaker-than-expected non-farm payroll data and lower inflation print reduced expectations of tighter monetary policy. Euro area equities maintained their strength and followed the US equities in August, supported by gains across industrial, financial and defence stocks. The Nikkei 225 declined in July amidst concerns over the weakness in yen and rising government debt. Nevertheless, coordinated US-Japan measures to support the yen helped stabilise market sentiment, with equities recovering in August. Emerging market equities declined in July due to rising crude oil prices and portfolio outflows. During August (till 21st), a weaker US dollar and reduced expectations of US rate hikes helped emerging market equities, leading to a modest recovery. In the latter half of August, equities accross the globe, however, declined on account of rising long term sovereign bond yields (Chart II.8a). 
 Geo-political tensions and the Federal Open Market Committee (FOMC) meeting decision drove the uptick in US 10-year treasury yield in July, and it rose further to an 18-month high by around mid-August (Chart II.8b). The US dollar index registered a steep fall post the FOMC announcement and continued to weaken thereafter (Chart II.8c). Foreign investors continued to reduce their exposure to emerging market equities, which was more than offset by inflows into emerging market debt securities in July (Chart II.8d). Central banks’ policies remained divergent but vigilant to address inflation in July and August (till 21st) (Chart II.9). In July, New Zealand and South Korea increased their benchmark interest rates responding to rising inflationary pressures, whereas, the US, the UK, the Euro area, Canada and Japan held their policy rates steady. Among EMEs, China, Indonesia, Malaysia and South Africa maintained status quo while Russia reduced its key rate. In August so far (till 21st), Australia and Sweden kept their benchmark interest rates unchanged citing inflationary risks. Within EMEs, Mexico and China held the rates steady. Brazil reduced its policy rate citing a deceleration in economic activity combined with heightened uncertainty in global economic environment.
III. Domestic Developments High-frequency indicators for July reflected strong economic activity and domestic demand. Corporate results revealed that the operating profit growth of manufacturing and services companies improved during Q1:2026-27. Based on high-frequency indicators, industrial and services activity remained resilient in July despite the geopolitical tensions in West Asia. The Monetary Policy Committee (MPC), in its review of August 2026, voted unanimously to keep the policy repo rate unchanged at 5.25 per cent. The MPC continued with the neutral stance emphasising the need to wait for greater clarity amidst uncertainties regarding southwest monsoon, geopolitics, and global trade policy.5 The retail inflation in Q1:2026-27 has reflected limited pass-through of cost pressures, while growth remained resilient. Aggregate Demand High-frequency indicators continued to reflect buoyant economic activity in July. Goods and Services Tax (GST) revenue growth strengthened, driven by robust growth in tax revenue from imports, while domestic collections also recorded healthy growth.6 GST E-way bill generation indicated steady goods movement in July 2026. Growth in petroleum consumption rebounded, after contracting in the preceding three months, led by petrol and diesel, although aviation turbine fuel consumption remained subdued. Delayed monsoons and high humidity drove a surge in cooling needs, leading to sustained growth in electricity demand. The monthly volume of toll transactions continued to soften with the adoption of the FASTag Annual Pass.7 Digital payments registered robust growth in value, though the growth in transaction volume moderated largely due to base effect (Table III.1).8  Domestic demand remained strong in July, supported by rural demand. Retail automobile sales accelerated, led by stronger tractor and two-wheeler sales, reflecting sustained rural consumption and mobility demand. Urban demand also remained firm, with passenger vehicle sales maintaining high growth. Domestic air passenger traffic, however, declined further in July, partly reflecting capacity rationalisation by major aviation carriers and elevated aviation turbine fuel costs (Table III.2). Labour market conditions softened in Q1:2026-27.9 The labour force participation rate and worker population ratio under the current weekly status (CWS) declined while the unemployment rate increased driven by rural areas.10 However, there was an increase in the share of regular salaried jobs, particularly in the secondary and tertiary sectors.11 In July, the all-India unemployment rate (based on CWS) fell, with a decline in the rural unemployment rate.12 The labour force participation rate and worker-population ratio increased as compared to previous month in both rural and urban areas.13 In July, Naukri JobSpeak Index reflected some moderation in white collar hiring - primarily evident in the education, hospitality, and pharma sector. PMI employment continued to remain in expansion with notable increase observed in the services sector. Demand for work under the Viksit Bharat–Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G)14 declined sharply in July (Table III.3). Government Finances The Central Government’s gross fiscal deficit (GFD) as per cent of the full year budget estimates (BE) increased marginally during Q1:2026-27 vis-à-vis the corresponding period of the previous financial year.15 The higher fiscal deficit during Q1:2026-27 was primarily on account of continued double-digit growth in capital expenditure.16 Revenue account, on the other hand, recorded narrowing of deficit driven by robust net tax collections (Chart III.1a & b).17 Under revenue expenditure, while major subsidies grew, interest payments contracted.18 
 The key deficit indicators of the State Governments as per cent of BE also displayed mixed pattern during Q1:2026-27 (Chart III.2a). The consolidated GFD of the States, as a proportion of BE, was slightly lower than the same period last year, driven by both lower revenue as well as capital expenditures (Chart III.2b). Revenue receipts displayed moderation amidst a fall in grants from the Centre while robust growth in State GST collections along with healthy increase in state excise duties, sales tax, stamp duties and registration fees provided support. Trade Both merchandise exports and imports recorded a double-digit growth in July 2026 (y-o-y) with exports growing at a four-month high (in 2026-27 so far) driven by sectors like petroleum products, electronic goods, engineering goods, and organic and inorganic chemicals.19,20 However, exports of gems and jewellery, readymade garments of all textiles, and leather and leather products contracted. Destination-wise, export growth was broad-based with exports to the US expanding at double-digit rate after seven months.21 The growth in imports was driven by commodities such as electronic goods, petroleum, crude and products, and fertilisers.22 Gold imports registered the lowest growth in 2026-27 so far, while silver imports contracted for the third consecutive month, likely reflecting the impact of import duty hike in May 2026.23 India’s merchandise trade deficit widened both over the year as well as over the preceding month (Chart III.3).24 The higher deficit was driven by electronic goods, while oil deficit remained unchanged.25 The US Section 301 tariffs that imposed an additional 10 per cent tariff on India came into effect on July 24, 2026. However, India’s major export commodities to the US, such as smartphones, petroleum products and pharmaceuticals, remain outside its purview. India is likely to be less affected than some of the Asian economies in the US market, such as China, Vietnam and Thailand.26 Net services exports grew at a healthy pace in June 2026, although imports grew at a faster pace than exports (Chart III.4).27 The growth in services exports in June 2026 was primarily driven by software and business services, while transport, business, and travel services supported the growth in services imports. Aggregate Supply Agriculture The monsoon activity picked up in July after a deficit in June.28 Spatially, all four regions have been witnessing deficit rainfall (Chart III.5a). With increased rainfall in July, the all-India reservoir storage stood close to its decadal average and higher than the level during preceding El Niño year of 2023 (Chart III.5b). The temporal progress of kharif sowing in the current year has been better vis-à-vis 2023 (Chart III.5c).29 The India Meteorological Department (IMD) has a below normal forecast of rainfall at the all-India level for the second half of the season (August and September).30
A bumper production in the previous year led to a robust procurement of rice and wheat31, and comfortable public foodgrain stocks which are well above the buffer norms.32 The Government has announced Open Market Sales Scheme (OMSS) for rice and wheat for 2026-27 on July 03, 2026, which is valid until June 30, 2027. Industry and Services Quarterly results of listed non-government non-financial (NGNF) companies33 for Q1:2026-27 indicate a resilient corporate performance with a sharp rise in nominal sales growth, mainly driven by automobiles, petroleum, and electrical machinery industries (Chart III.6). Within services sector, sales growth of both IT and non-IT companies remained buoyant with a notable pick-up in the IT sector. The operating profit of manufacturing and services companies improved significantly during Q1:2026-27 from the previous quarter (Chart III.7a). The operating profit margins improved across all major sectors (Chart III.7b).
During Q1:2026-27, the revenue growth of listed banking and financial sector companies edged up. Net profit growth of these companies also surged, largely reflecting a decline in other provisions and contingencies (Chart III.8). Monthly Indicators of Industrial Activity Based on high-frequency indicators, industrial activity remained resilient despite the geopolitical tensions in West Asia. Index of industrial production strengthened sharply in June, recording its strongest growth in nearly two years, supported by a broad-based acceleration in manufacturing. In July, the PMI manufacturing remained in the expansionary zone, with a slight moderation in momentum. Export orders strengthened, indicating resilient external demand, while firms’ expectations for future output improved, pointing to a positive outlook for demand and new business opportunities.34 Electricity generation remained robust in July, with conventional power generation sustaining the growth amidst elevated power demand and cooling requirements. The Index of Core Industries (ICI) witnessed steady growth in July, supported by iron ore, electricity, cement and refinery products (Annex Box 1). Automobile production continued to register robust growth, led by passenger vehicles and two-wheelers. Capital goods imports remained strong in July, suggesting sustained investment demand (Table III.4). India’s clean energy sector achieved a major milestone by crossing 300 Gigawatt (GW) of non-fossil fuel-based installed electricity generation capacity, primarily driven by solar energy whose cumulative installed capacity reached 164 GW by July 31, 2026 (Chart III.9). To provide further boost to India’s solar sector, the Government has approved the Pradhan Mantri Surya Sarovar Yojana (PM-SSY) for the development of Floating Solar Photovoltaic Projects with Energy Storage Systems.35 With an outlay of ₹5,070 crore, the scheme will be implemented from 2026-27 to 2030-31 to enhance the floating solar photovoltaic capacity in the country from 700 megawatt (MW) to 5,000 MW.
Monthly Indicators of Services Activity Services sector activity remained resilient in July. The services PMI continued to remain in the expansionary zone though witnessing some moderation as new business inflows rose only moderately. Other high frequency indicators point to buoyant road transport activity with retail commercial vehicle sales registering strong growth, led by continued demand across the vehicle segments. International air passenger traffic remained subdued, although the pace of contraction eased further in July. Cement production witnessed a pick-up in growth. Domestic logistics activity strengthened, with railway freight movements and port cargo traffic recording healthy growth. Air cargo movements also remained robust in June, supported by strong international air cargo activity. Foreign tourist arrivals recorded steady growth in June aided by favourable base effect (Table III.5). Inflation The headline consumer price index (CPI) inflation36 increased marginally to 4.45 per cent (y-o-y) in July 2026 from 4.38 per cent in June, driven by ‘food and beverages’, while core inflation remained unchanged (Chart III.10).37 Eight out of twelve divisions witnessed a sequential increase in inflation in July (Chart III.11). The increase in ‘food and beverages’ inflation remained broad-based with meat, eggs, and spices registering double digit inflation.38 On a month-on-month (m-o-m) basis, indices for all sub-components of ‘food and beverages’ registered positive momentum in July. Fuel inflation edged up marginally in July.39 Core inflation remained steady at 3.9 per cent (y-o-y) in July with elevated inflation persisting in ‘personal care, social protection and miscellaneous goods and services’ and ‘restaurant and accommodation services’ divisions. Excluding precious metals, core inflation rose to 2.7 per cent in July from 2.5 per cent in June. The inflation edged up marginally both in urban and rural areas in July40 and most of the States/UTs recorded inflation in the range of 2–6 per cent (Chart III.12).41 During August so far (till 21st), high-frequency data suggest a broad-based sequential increase in food prices. Among cereals, rice and wheat prices continued their upward trajectory, though their pace of m-o-m increase stabilised. Within pulses, prices of all the major constituents inched up over previous month. Edible oil prices registered broad-based increases, led by mustard and palm oil. Pace of increase in prices of key vegetables moderated sequentially, with tomato prices recording a m-o-m decline (Chart III.13).
Retail prices of petrol, diesel, and domestic LPG remained unchanged in August so far (till 21st) (Table III.6). The price of the Indian basket crude oil42 increased to US$ 89.7 per barrel in August (till 20th), higher than the average price recorded in both June and July (Chart III.14). The Union Cabinet has recently approved ‘Samudra Manthan’ – the National Offshore Exploration Scheme which aims to unlock India’s vast offshore energy potential. It is expected to catalyse hydrocarbon reserve accretion of over 600 million tonnes of oil equivalent, increase offshore exploration activity, increase availability of domestic oil and gas and stregthen indigenous manufacturing.43 
| Table III.6: Petroleum Product Prices Remained Unchanged in July and August | | Item | Unit | Domestic Prices | Month-over-month (per cent) | | Aug-25 | Jul-26 | Aug-26 ^ | Jul-26 | Aug-26 ^ | | Petrol | ₹/litre | 101.1 | 108.7 | 108.7 | 0.0 | 0.0 | | Diesel | ₹/litre | 90.5 | 98.1 | 98.1 | 0.0 | 0.0 | | Kerosene (subsidised) | ₹/litre | 44.5 | 46.8 | 46.8 | 0.0 | 0.0 | | LPG (non-subsidised) | ₹/cylinder | 863.3 | 952.3 | 952.3 | 0.6 | 0.0 | ^ : For the period August 1-21, 2026.
Note: Other than kerosene, prices represent the average Indian Oil Corporation Limited (IOCL) prices in four major metros (Delhi, Kolkata, Mumbai and Chennai). For kerosene, prices denote the average of the subsidised prices in Kolkata, Mumbai and Chennai.
Sources: IOCL; Petroleum Planning and Analysis Cell (PPAC); and RBI staff estimates. | WPI inflation moderated marginally to 9.8 per cent in July 2026, from 9.9 per cent in June, supported by a decline in fuel and power group inflation.44 Inflation in primary and manufactured products, however, registered an increase. Industrial45 and farm input46 cost inflation moderated, but remained elevated.47 The output producer price index (OPPI) also remained sticky at 9.6 per cent in July 2026 due to elevated inflation in manufacturing products, agriculture, forestry & fishing, and mining & quarrying. The PMI for input prices for manufacturing and service sector firms continued their easing trend in July 2026 while remaining in expansionary zone. The PMI for output prices marked an uptick across both the sectors, narrowing the gap between input and output price indices, especially for service sector firms (Chart III.15). IV. Financial Conditions System liquidity48 improved in July and August so far (till 21st).49 The liquidity surplus narrowed in the second half of July on account of tax outflows, but it went up again in August on account of drawdown of the government cash balances and measures taken to attract capital inflows. The average daily deployment under the standing deposit facility (SDF) increased. The reliance of banks on the marginal standing facility (MSF) declined (Chart IV.1).50 High SDF balances coupled with tepid response to variable rate repo (VRR) auctions in the recent period, suggest comfortable liquidity conditions.51 With liquidity surplus in the banking system crossing ₹3.0 lakh crore for the first time in nearly four months, the Reserve Bank conducted sixteen variable rate reverse repo (VRRR) auctions (overnight to 7-days maturity) in August, cumulatively absorbing ₹12.68 lakh crore.
Money Market The weighted average call rate (WACR) generally hovered in the upper half of the policy corridor during end-June and July following moderation in surplus liquidity. Towards end-July and August so far (till 21st), overnight money market rates softened with comfortable liquidity (Chart IV.2a).52 Overnight rates in the collateralised segment evolved in line with the WACR and the changes in system liquidity. The yields on 3-month Treasury Bills remained largely range-bound. Commercial papers (CPs) and certificate of deposits (CDs) rates softened in second half of July and August as improved liquidity and inflows from FCNR(B) deposit reduced banks’ dependence on CDs (Chart IV.2b).53 The spread between 3-month CP and 91-day Treasury Bill yields narrowed.54 Government Securities (G-Sec) Market G-sec yields hardened in July reflecting renewed geopolitical tensions in West Asia, volatile crude oil prices, rise in US treasury yields and higher domestic CPI inflation for June (Chart IV.3). The yields softened in early August driven by (i) robust capital inflows under the Reserve Bank’s swap facilities; and (ii) the RBI’s Monetary Policy Committee (MPC) unanimously voting to keep the policy repo rate unchanged at 5.25 per cent, broadly in line with market expectations while maintaining the neutral stance.55 In mid-August, yields rose across tenors, reflecting a rise in crude oil prices and hardening of US treasury yields. Corporate Bond Market Corporate bond issuances rebounded in June. On a cumulative basis, the total issuance remained significantly lower in the current financial year so far due to elevated yields.56 Corporate bond yields and spreads exhibited a mixed picture across tenors and rating spectrums in August (till 20th) [Table IV.1].
Money and Credit The reserve money (adjusted for cash reserve ratio) expanded at a robust pace in July 2026, and currency in circulation remained broadly steady.57 Money supply growth remained elevated (Chart IV.5).58 Credit growth continued to remain healthy in July. The recent deposit mobilisation by scheduled commercial banks’ (SCBs’) helped the incremental credit-deposit ratio to moderate (Chart IV.6).59 | Table IV.1: Average Corporate Bond Yields and Spreads Exhibited Mixed Trend | | | Yields
(Per cent) | Spread (bps) | | (Over Corresponding Risk-free Rate) | | Instrument | July, 2026 | August 2026
(upto 20th) | Variation
(bps) | July, 2026 | August 2026
(upto 20th) | Variation | | 1 | 2 | 3 | (4 = 3-2) | 5 | 6 | (7 = 6-5) | | (i) AAA (1-year) | 7.44 | 7.33 | -11 | 170 | 155 | -15 | | (ii) AAA (3-year) | 7.46 | 7.53 | 7 | 111 | 117 | 6 | | (iii) AAA (5-year) | 7.51 | 7.53 | 2 | 95 | 100 | 5 | | (iv) AA (3-year) | 8.26 | 8.34 | 8 | 191 | 198 | 7 | | (v) BBB minus (3-year) | 11.84 | 11.92 | 8 | 549 | 556 | 7 | | Source: Fixed Income Money Market and Derivatives Association of India. |
The total flow of financial resources to the commercial sector increased in 2026-27 so far (up to July 31), driven by a pickup in non-food bank credit and rise in foreign direct investment (FDI) to India60 (Table IV.2a and 2b). Bank credit continued to record robust growth across major sectors in June 2026.61 Credit to the agriculture sector accelerated, and industrial credit growth sustained its momentum aided by an expansion in credit to the large industries. Credit flow to the services sector also strengthened, driven by non-banking financial companies (NBFCs), trade and commercial real estate. Personal loans picked up in June, supported by housing loans and loans against gold jewellery (Chart IV.7). | Table IV.2a: Flow of Financial Resources to Commercial Sector Increased | | (₹ lakh crore) | | Source | April-March | Up to July 31 | | 2024-25 | 2025-26 | 2025-26 | 2026-27 P | | A. Non-Food Bank Credit | 18.08 | 29.19 | 0.73 | 6.69 | | B. Non-Bank Sources (B1+B2) | 18.15 | 17.69 | 3.76 | 3.96 | | B1. Domestic Sources | 14.91 | 12.66 | 2.37 | 1.88 | | B2. Foreign Sources | 3.25 | 5.03 | 1.39 | 2.08 | | C. Total Flow of Resources (A+B) | 36.23 | 46.88 | 4.48 | 10.65 | P: Provisional.
Notes: 1. Figures in the columns might not add up to the total due to rounding off of numbers.
2. For detailed notes and data, please refer to Current Statistics Table No: 18(a).
Sources: RBI; SEBI (Securities and Exchange Board of India); AIFIs (All India Financial Institutions); and RBI staff calculations. |
| Table IV.2b: Higher Outstanding Credit to Commercial Sector | | (₹ lakh crore; Figures in parentheses are y-o-y percentage changes) | | Source | At End-March | As on July 31 | | 2025 | 2026 | 2025 | 2026 P | | A. Non-Food Bank Credit | 183.72 | 212.91 | 184.45 | 219.60 | | | (10.9) | (15.9) | (9.9) | (19.1) | | B. Non-Bank Sources (B1+B2) | 88.86 | 101.59 | 90.80 | 103.53 | | | (14.6) | (14.3) | (15.4) | (14.0) | | B1. Domestic Sources | 66.37 | 75.11 | 68.00 | 76.44 | | | (17.3) | (13.2) | (18.1) | (12.4) | | B2. Foreign Sources | 22.49 | 26.48 | 22.79 | 27.10 | | | (7.2) | (17.7) | (8.0) | (18.9) | | C. Total Credit (A+B) | 272.58 | 314.50 | 275.24 | 323.14 | | | (12.1) | (15.4) | (11.6) | (17.4) | P: Provisional.
Notes: 1. Figures in the columns might not add up to the total due to rounding off of numbers.
2. Data on non-bank sources excludes issuances of equities and hybrid instruments under domestic sources and foreign direct investment in equities under foreign sources.
3. Flows based on outstanding data may not tally with the flows provided in Table IV.2a due to:
(a) Conversion of some Housing Finance Companies into Non- Banking Financial Companies; and
(b) Valuation effect in case of foreign sources.
4. For detailed notes and data, please refer to Current Statistics Table No: 18(b).
Sources: RBI; SEBI; AIFIs; and RBI staff calculations. | NBFC credit continued to record double-digit growth (y-o-y) across major sectors (except industry) in June 2026.62 While NBFCs’ credit to agriculture expanded at a robust pace, the same moderated in case of industrial credit, largely due to deceleration in credit growth to infrastructure. NBFCs’ credit to the services sector accelerated, driven by commercial real estate, trade and transport operators segments. NBFCs’ retail loans also grew at a robust pace, propelled by growth in loans against gold jewellery, housing63, and vehicle loans (Chart IV.8). Deposit and Lending Rates During the current easing cycle (February 2025 to June 2026), banks have lowered both weighted average lending rates and weighted average domestic term deposit rates in response to the cumulative 125 basis points (bps) reduction in the policy repo rate.
However, the fresh deposit and lending rates have hardened in the recent months with the rising credit demand (Table IV.3). Across bank groups, private sector banks recorded stronger pass-through to lending rates than public sector banks, while later exhibited relatively higher transmission to deposit rates during the current easing cycle (Chart IV.9). The transmission to lending rates, both on fresh and outstanding rupee loans, was broad-based across major sectors (Chart IV.10). Equity Markets Indian equity markets gained in July and August, supported by resilient corporate earnings and a rebound in net buying by foreign portfolio investors, even as lingering geopolitical uncertainties capped the gains (Chart IV.11). | Table IV.3: Transmission to Banks’ Deposit and Lending Rates | | (Basis points) | | Period | Repo Rate | Term Deposit Rates | Lending Rates | | WADTDR-Fresh Deposits | WADTDR-Outstanding Deposits | EBLR | 1-Year MCLR (Median) | WALR - Fresh Rupee Loans | WALR-Outstanding Rupee Loans | | Overall | Interest Rate Effect# | | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | Tightening Cycle
May 2022 to Jan 2025 | 250 | 259 | 206 | 250 | 175 | 182 | 191 | 115 | Easing Cycle
Feb 2025 to Jun 2026 | -125 | -63 | -51 | -125 | -50 | -80 | -79 | -91 | | Monthly | | May-2026 | 0 | 4 | -2 | 0 | 10 | 1 | -2 | -1 | | Jun-2026 | 0 | 16 | 1 | 0 | -15 | 2 | 6 | -1 | #: Calculated at January 2025 weights.
WALR: Weighted average lending rate; WADTDR: Weighted average domestic term deposit rate;
MCLR: Marginal cost of funds-based lending rate; EBLR: External benchmark-based lending rate.
Note: Data on EBLR pertain to 32 domestic banks.
Source: RBI. |
External Sources of Finance FDI flows improved in June 2026 from the previous month, supported by higher gross inflows (Chart IV.12a).64 Singapore, the Netherlands, the US, and Canada accounted for around 74 per cent of the total equity inflows. Manufacturing received the highest share of equity inflows, followed by electricity generation, computer, and communication services.65 Outward FDI continued to register downward trend for the last two months. About 65 per cent of the outward FDI flows were directed to Singapore, the UAE, and the US (Chart IV.12b). The major sectors witnessing outward FDIs were financial, insurance and business services, manufacturing, wholesale/retail trade, restaurants, and hotels – together accounting for 74 per cent of the outward flows. 
 FPI witnessed sustained net inflows since June 2026. In July, foreign portfolio investors turned net buyers in equity segment, reversing four consecutive months of outflows. In August (till 20th), foreign portfolio investors pumped in US$ 1.9 billion into the market, largely supported by the equity segment (Chart IV.13).66 Net inflows under non-resident deposits improved during June 2026 as compared with the previous month, driven by an increase in FCNR(B) deposits on account of recent policy measures to attract foreign capital (Chart IV.14).67 External commercial borrowings (ECBs) strengthened during April-June 2026, with both registrations and net inflows being higher than in the previous year68 (Chart IV.15). Around 27 per cent of the ECBs were mobilised for capital expenditure. India’s foreign exchange reserves remain comfortable to cover for 11.0 months of goods imports (as on August 14) and 94.0 per cent of the external debt outstanding as at end-March 2026 (Chart IV.16).69
Foreign Exchange Market Like other EMEs, the Indian rupee (INR) exhibited a depreciating bias in July owing to rising crude oil prices, driven by West Asia tensions. A brief de-escalation of US-Iran tensions late in July led to a momentary appreciation of the INR (Chart IV.17). In August so far (till 20th), the INR depreciated due to rebound in global crude oil prices. In real effective terms, the INR appreciated in July driven by higher domestic inflation vis-à-vis major trading partners outweighing the depreciation of INR in nominal effective terms (Chart IV.18). V. Conclusion The global economic outlook continues to be shaped by geopolitical frictions in West Asia and fresh tariffs by the US. Despite these risks to global trade and the growth-inflation matrix, India’s robust macroeconomic fundamentals continue to provide cushion to the domestic economy. The momentum of Q1:2026-27 continued in July with most of the high-frequency indicators reflecting sustained manufacturing and services activity, and double-digit expansion in merchandise exports and imports. The recovery in southwest monsoon in July helped in kharif sowing reaching closer to normal acreage, partly mitigating some of the risks to the agriculture sector. While headline CPI inflation edged up above the target, it was primarily on account of supply side pressures. Stable core inflation reaffirmed the lower pass-through of cost pressures. Financial conditions are characterised by high credit growth, comfortable liquidity, and softening G-sec yields supported by rebound in capital inflows. 
Annex Box 1: New Series of the Index of Core Industries: Salient Features The Office of the Economic Adviser, Ministry of Commerce and Industry has revised the base year of the Index of Core Industries (ICI) from 2011-12 to 2022-23, bringing it in line with the revised GDP, WPI and IIP series with better reflection of the evolving structure of the industrial economy. The revised series expands the coverage from eight to nine core industries with the inclusion of iron ore, reflecting its growing importance as a key input for steel production and infrastructure. The revision also incorporates methodological changes. Coverage of coal has been restricted to raw coal, with washed coal and coal middlings excluded to avoid double counting. For steel, gross production has replaced net production to provide a more comprehensive measure of output. Industry-wise weights have also been updated in line with the revised IIP structure. Consequently, the combined weight of the nine core industries in the revised IIP has declined to 32.88 per cent from 40.27 per cent in the previous series (Table 1). The revised weighting structure has changed the relative importance of individual sectors, with the weight of electricity rising sharply to 30.9 per cent from 19.85 per cent, while the weights of refinery products, coal, crude oil, natural gas, steel and cement declined. | Table 1: Key Changes in the Revised ICI Series | | Feature | Old Series | Revised Series | | Base year | 2011-12 | 2022-23 | | Number of core industries | 8 | 9 | | New industry | — | Iron ore | | Coal coverage | Raw coal + washed coal + coal middlings | Raw coal only | | Steel production | Net production | Gross production | | Combined weight in IIP (per cent) | 40.27 | 32.88 | | Electricity weight in ICI (per cent) | 19.85 | 30.90 | The higher weight of electricity increases the influence of power generation in the headline ICI (Chart 1a). The overall growth trajectory and major turning points remain broadly similar across the two series, indicating continuity in underlying industrial trends. The revised series, however, records somewhat stronger growth in recent months, reflecting the inclusion of iron ore, which has recorded sustained double-digit growth. The divergence is also attributed to higher weight of electricity, which amplifies the impact of power generation on the index (Chart 1b). |
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