India’s Growth Resilient But Facing Supply-Side Pressures, Says RBI Report

New Delhi, May 23 (KNN) India’s domestic demand continues to remain the primary engine of economic growth, but the near-term outlook has become ‘somewhat clouded’ due to supply-side pressures arising from the ongoing West Asia crisis, according to the latest State of the Economy report released by the Reserve Bank of India.

Published as part of the RBI’s April 2026 monthly bulletin, the report noted that while headline inflation remains within the central bank’s tolerance band, the transmission of global price pressures into domestic markets warrants close monitoring.

The RBI also highlighted that financial conditions, crude oil prices and capital flows continue to pose challenges to India’s external sector outlook amid heightened geopolitical uncertainty, reported The Hindu.

Mixed High-Frequency Indicators Reflect Uneven Economic Activity 

High-frequency indicators presented a mixed picture of economic activity. E-way bill generation maintained double-digit growth, while petrol and diesel consumption continued to rise. 

However, overall petroleum consumption declined in April, largely due to reduced demand for naphtha, liquefied petroleum gas (LPG) and other petroleum products.

The report observed that higher temperatures drove a sharp increase in electricity demand during the month. At the same time, toll transactions continued to decline, a trend the RBI attributed partly to the introduction of the FASTag Annual Pass scheme in August 2025.

Rural Demand Supports Growth, Labour Market Shows Signs of Moderation 

On the demand side, rural markets remained a key source of strength. Rural automobile sales continued to register double-digit growth in April, though at a slower pace compared to previous months. 

Tractor and two-wheeler sales remained robust, while passenger vehicle sales in urban markets also recorded healthy growth.

In contrast, air passenger traffic witnessed a further decline during April, impacted by higher aviation turbine fuel prices.

The RBI also pointed to some moderation in labour market conditions during the January-March 2026 quarter. 

Labour force participation and worker population ratios declined, while unemployment increased, largely driven by weaker rural employment conditions.

However, the report noted a positive shift in the quality of employment, with the share of regular salaried jobs increasing alongside higher employment in the manufacturing and services sectors.

Agriculture and Industry Show Resilience 

On the supply side, agricultural activity remained encouraging. Summer crop sowing has progressed well, exceeding normal seasonal acreage levels and surpassing last year's coverage for most major crops, except rice.

Industrial activity also demonstrated resilience despite geopolitical headwinds. The Index of Eight Core Industries recorded an uptick, supported by stronger output in cement, steel and electricity. 

Manufacturing activity remained stable, with the Purchasing Managers’ Index (PMI) rising marginally, although cost pressures and geopolitical spillovers continued to moderate growth in new orders and production.

The services sector maintained its momentum during April. While the Services PMI improved, supported by transportation activity and stronger domestic business orders, export demand weakened due to the impact of the West Asia conflict and subdued inbound tourism.

The RBI’s assessment suggests that while domestic demand, agriculture and industrial activity continue to support growth, evolving geopolitical developments, energy prices and external sector risks could influence India’s economic trajectory in the coming months.

(KNN Bureau)