Page 6 - Policy & Economic Report - July 2025

POLICY AND ECONOMIC
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Executive Summary

July 2026 was characterized by a delicate balance between resilience and uncertainty in the global
economy. Geopolitical tensions, evolving trade policies and volatility in energy markets continued to pose
significant risks to growth, while rapid technological advancement, particularly in artificial intelligence,
semiconductors and digital infrastructure, emerged as an important driver of economic activity. Although
global inflation moderated from the exceptionally high levels witnessed in recent years, renewed
increases in energy prices and supply chain disruptions slowed the pace of disinflation, compelling
policymakers to maintain a cautious approach. Against this backdrop, India remained well positioned,
supported by resilient domestic demand, stable macroeconomic fundamentals, expanding manufacturing
activity and a robust external sector.

Global economic activity remained resilient despite heightened geopolitical uncertainty and continued
trade fragmentation. The International Monetary Fund (IMF) projects global growth at 3.0 per cent in
2026, improving to 3.4 per cent in 2027, with emerging market and developing economies expected to
continue outperforming advanced economies. While business activity strengthened across major
advanced economies, supported by improving services demand and technology-led investment, elevated
input costs, supply chain disruptions and uncertainty surrounding global trade policies continued to weigh
on the economic outlook. Inflationary pressures persisted across several economies due to higher energy
and transportation costs, even as monetary tightening and easing commodity prices helped contain
broader price pressures.

Several structural developments are reshaping the global economy. Artificial intelligence is increasingly
emerging as a catalyst for productivity growth, investment and economic transformation, while also
creating new challenges related to cybersecurity and financial stability. The changing geopolitical
landscape continues to influence global trade and investment patterns, encouraging diversification of
supply chains and greater regional economic integration. In addition, the issue examines the implications
of evolving labour market dynamics, international trade cooperation and climate resilience in shaping
long-term global growth.

India continued to reinforce its position as one of the world's fastest-growing major economies during
July 2026. Economic activity remained supported by strong domestic demand, sustained public
infrastructure investment and resilient manufacturing and services sectors despite a challenging global
environment. Manufacturing activity maintained steady expansion, while services continued to record
healthy growth, reflecting sustained business confidence and resilient domestic economic conditions. The
Index of Core Industries also recorded improved performance, driven by strong growth in iron ore,
electricity, cement and steel production, indicating continued momentum in industrial activity.

Inflation increased during June 2026, primarily due to higher food prices, while inflation across most non-
food categories remained relatively moderate. Wholesale prices reflected continued cost pressures
arising from higher fuel and manufactured product prices. Against this backdrop, the Reserve Bank of
India maintained a balanced monetary policy stance, keeping the policy repo rate unchanged at 5.25 per

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