Growth momentum holds despite shocks: RBI Deputy Governor Poonam Gupta | BS Events

India’s economic growth momentum has remained strong despite a series of shocks, including high US tariffs, surging oil prices, deficient monsoon rainfall and capital outflows, said Poonam Gupta, Deputy Governor at the Reserve Bank of India (RBI), citing the economy’s diversified growth base and improved policy response. 

The economy grew 7.8 per cent in the first quarter of the current financial year, with momentum continuing into the second quarter, raising expectations of upgrades to growth forecasts, she said at the Business Standard BFSI Insight Summit on Tuesday. 

“Such was the momentum seen in the economy, but interestingly, that momentum is continuing up to the second quarter,” Gupta said, pointing to indicators including tax collections, bank credit growth, exports, Purchasing Managers’ Index (PMI) readings and industrial and infrastructure activity. 

She compared the shift to moving from an A grade to an A-plus, saying it would require a disproportionate amount of effort. “If this global environment becomes better, if not right away in the next one year, another 50 basis points to 1 percentage point growth will come just from there,” she said. 

Gupta said India’s growth story was supported by several drivers rather than depending on one or two sources of growth. Economies that rely heavily on natural resources, a particular export market, remittances or favourable demographics can be more vulnerable when those sources come under pressure, she said. 

“India has all of the above, plus much more,” Gupta said, referring to the range of factors supporting the economy. She added that India’s growth was broad-based across regions and sectors and supported by rising productivity. 

The resilience also reflected improvements in policy frameworks, with a firm focus on macroeconomic and financial stability. The RBI Deputy Governor said the response to shocks needed to be assessed not only in terms of their immediate impact on growth but also in terms of how policy decisions helped the economy adjust over time. 

Gupta said India had become less vulnerable to some economic shocks as a result of deliberate policy action and adaptation. She cited oil price shocks and deficient rainfall as examples of disruptions to which the economy had been more sensitive in the past. 

“And just as the rest of the world, over time, due to conscious policy actions and adaptation, the economy has become less sensitive to some of the shocks,” she said. 

Gupta cautioned against the temptation to respond to economic shocks with short-term measures, saying policymakers needed to maintain a longer-term perspective.  

“When confronting such shocks, there is a temptation. Everybody has a temptation to break short-term retreats, and one has to restrain oneself. The focus has to be on the medium and long term,” she said. 

Gupta said the way shocks were managed also mattered, pointing to policy certainty, greater engagement with stakeholders, better communication and timely action as factors that had helped India navigate recent challenges. She stressed that the outcomes could not be attributed to the central bank or a single government department, but reflected coordination across different parts of the economy and government. 

“And more is the way the shocks have been managed, certainly this time around, with policy certainty, more engagement with stakeholders, better communication and timely action, and what I call all of the system approach,” she said. “If you think it’s only the central bank or the ministry of food which have made these outcomes possible… It has been the effort of many, many stakeholders. Effort of the private sector, households, state governments, minister of external affairs, minister of agriculture, (and) department of consumer affairs.” 

She said the collective response across institutions and stakeholders had helped make the outcomes possible, emphasising that resilience depended on more than the actions of any one institution. 

Gupta’s remarks placed India’s growth performance in the context of both its economic structure and its policy response. A diversified domestic economy provides multiple sources of growth, while policy certainty and coordination can help reduce the impact of shocks. She said the challenge for policymakers was to preserve this resilience by maintaining macroeconomic and financial stability and keeping the focus on the medium and long term. 

On public finances, Gupta said India was better placed than many economies, where debt ratios had risen since the Covid-19 pandemic. Global public debt stood at about 94 per cent of gross domestic product (GDP) in 2025 and is projected to reach 100 per cent by 2029, according to the IMF’s April 2026 Fiscal Monitor. She said India’s general government debt-to-GDP ratio was projected to decline from around 84 per cent in 2025 to 75 per cent by 2041-42. Improving the quality of fiscal expenditure, greater transparency and a debt composition that keeps borrowing costs contained would support the country’s fiscal position.

About inflation, she said global price pressures remained exposed to oil prices, weather-related disruptions and higher shipping, logistics and insurance costs. The International Monetary Fund’s (IMF’s) inflation projections cited by Gupta put global headline inflation at 4.7 per cent in 2026, up from 4.1 per cent in 2025, before easing to 4.1 per cent in 2027. 

For India, inflation was projected to rise from 2 per cent in 2025 to 5 per cent in 2026 before easing to 4.4 per cent in 2027, she said. Central banks need to distinguish temporary supply shocks from more persistent price pressures while remaining alert to second-round effects through wages and inflation expectations. 

The RBI Deputy Governor said monetary policy should remain focused on price stability, with central banks taking timely action to bring inflation back to target and prevent temporary shocks from becoming persistent. The flexibility built into inflation-targeting frameworks, including tolerance bands, had helped central banks tailor their responses to specific challenges, she said. 

On the global front, Gupta said the financial sector faced three emerging risks: A potential fall in artificial intelligence (AI)-related asset prices if investments and profits disappointed; a sharp rise in sovereign bond yields amid renewed inflation; and cyber threats that could pose systemic risks to increasingly digital and interconnected financial services. 

Gupta said the financial sector had held up well globally so far, but risks highlighted in the IMF’s Global Financial Stability Report warranted attention. “A fall in the prices of AI-related assets, if investments and profits in AI prove weaker or less profitable than expected,” was one of the risks, Gupta added, and also flagged the possibility of “a sharp increase in sovereign bond yields from renewed inflation” and warned that cyber threats were becoming a systemic risk as financial services grew more digital and interconnected.