Five months after the Iran conflict raised fears of a sharp inflation spike, Indian officials report that the worst of those concerns have not yet materialised.
Inflation rose modestly last month but stayed inside the Reserve Bank of India’s 2‑6% tolerance band, according to the latest data.
Consumer demand has held up, with vehicle sales reaching record levels, credit growth climbing to a two‑year high, and GST receipts rising at a double‑digit pace.
RBI Governor Sanjay Malhotra said the economy is stronger after every crisis, noting resilient growth, inflation “more or less under check”, healthy corporate balance sheets and a robust external sector.
Most economists expect the RBI to keep the policy rate unchanged at 5.25% this year, even as inflation is forecast to pick up during the festive season when spending usually spikes.
The recent overhaul of India’s tax system lowered prices on cars, appliances and household goods, freeing up disposable income and boosting demand, according to experts.
Large consumer‑goods firms echoed this optimism. Hindustan Unilever said inflation‑led fears of demand loss did not materialise, while Britannia described the environment as “strong”. Mahindra & Mahindra reported “very strong demand momentum” across urban and rural markets, and TVS Motor highlighted resilient spending in rural and semi‑urban areas.
As Diwali approaches, businesses are building inventories, ramping up production and hiring temporary workers to meet the expected demand surge.
Chief economist Debopam Chaudhuri said the RBI is unlikely to disrupt festive consumption momentum, noting that historically the bank rarely raises rates during October‑December.
Oil prices have climbed back toward $90 a barrel, a concern for India which imports almost 90% of its crude. A weaker rupee, one of Asia’s worst‑performing currencies, could add to import costs.
Foreign policy uncertainty also looms. The US Federal Reserve may raise borrowing costs at its September meeting, and the Bank of Japan is considering additional hikes. Most other Asian central banks have already tightened policy, leaving India as an outlier.
Economist Garima Kapoor of Elara Global Research warned that moves by the Fed and BoJ could constrain the RBI’s policy flexibility, potentially forcing the RBI to hike rates to preserve the interest‑rate differential.
In short, India’s economy shows resilience in the face of external shocks, and the RBI is likely to keep rates steady while monitoring global developments and domestic demand.