July’s rainfall recovery partly eased farm risks, says RBI report | Economy & Policy News

The recovery in southwest monsoon in July helped kharif sowing to reach closer to normal levels, partly easing some of the risks to the farm sector, RBI officials said in the state of the economy report released on Tuesday.

 

The report said the domestic economy showed notable resilience to the ongoing global headwinds, marked by buoyant domestic demand and rising manufacturing and services activity.

 

The report also highlighted that consumer price index (CPI) based inflation edging up above the Central Bank’s 4 per cent target to 4.45 per cent in July from 4.38 per cent in June was mainly on account of supply side pressures.

 
 

While food and beverages fuelled inflation, core inflation, which excludes volatile food and energy prices, remained unchanged, endorsing the lower pass-through of cost pressures.

 

The report also pointed out that financial conditions are characterised by high credit growth, comfortable liquidity and softening G-sec yields backed by rebound in capital inflows. The views in the report are those of the authors and do not represent RBI’s.

 

Forecasts by different agencies indicated that gross domestic product (GDP) growth is likely to have eased to a four-quarter low of around 7.2 per cent in the June quarter, from the 7.8 per cent seen in the March quarter of FY26, Business Standard reported on Tuesday.

 

South-west monsoon picked up in July after recording a deficit in June, resulting in all-India reservoir storage staying close to its decadal average and higher than the level during preceding El Niño year of 2023.

 

IMD data showed that southwest monsoon that was in deficit by 35.4 per cent by end of June, recorded a surplus of 1 per cent by end of July due to strong recovery in rains.

 

“The temporal progress of kharif sowing in the current year has been better vis-à-vis 2023,” the report said.

 

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).

 

Backed by a high stock of public foodgrains, the government has also announced an open market sale scheme for the current financial year to augment supply, the report said.

 

Commenting that the Indian economy continued to display strength notwithstanding global headwinds, the report said domestic demand remained buoyant, as reflected by several indicators, including vehicle and tractor sales.

 

“India’s robust macroeconomic fundamentals continue to provide cushion to the domestic economy,” the report said while observing momentum of June quarter 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 report highlighted that petroleum product consumption growth returned to positive territory, after three straight months of contraction, while 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,” it said.

 

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 India.

 

Fresh deposit and lending rates have hardened in the recent months with the rising credit demand.

 

FDI flows improved in June 2026 from the previous month, supported by higher gross inflows. Net FDI stood at $ 1.3 billion in June 2026 as compared to (-) 0.1 billion in May 2026 and $ 2.3 billion in June 2025.

 

During June quarter of 2026-27, net FDI stood at US$ 7.8 billion as compared to US$ 4.8 billion in the corresponding period last year.

 

Gross inward FDI stood at $ 30.7 billion during the same period, higher than $ 26.7 billion a year ago.

 

The report noted that 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.

 

“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,” it said.

 

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.