Economy faces near-term risks from external uncertainties, says RBI report

India’s economy and financial system confront near-term vulnerabilities stemming from external uncertainties including geopolitical tensions and trade disruptions. These factors could amplify exchange rate fluctuations, suppress trade volumes, diminish corporate profitability, and curb foreign capital inflows, according to the Reserve Bank of India’s Financial Stability Report.

A significant downturn in U.S. equity markets might influence domestic stock performance and tighten financial conditions. Nevertheless, the economy maintains substantial buffers capable of weathering external shocks.

The RBI emphasized that India’s economic fundamentals show continued resilience, underpinned by vigorous growth, stable inflation, robust balance sheets across financial and corporate sectors, extensive safety nets, and judicious regulatory reforms.

Despite volatile global conditions, domestic consumption and investment are expected to drive India’s projected high-growth trajectory. Authorities acknowledge ongoing challenges from international spillovers and maintain proactive measures to fortify economic and financial safeguards.

The report highlighted 2025 as a turbulent period where geopolitical conflicts, trade disputes, and policy unpredictability pressured global economic stability. While demonstrating unexpected resilience, the world economy enters 2026 amid policy fluidity and untested macroeconomic frameworks.

Global finance faces persistent risks from elevated asset valuations, expanding sovereign debt burdens, and heightened interconnectedness between banking institutions and non-bank financial entities. Rapid financial innovation, including digital asset evolution and private credit expansion, introduces transformative opportunities alongside emerging stability concerns.

Published on December 31, 2025