There is no doubt that the long-term story of India is attractive. Over the next few decades, there are things successive governments will do right, and there will be things that they may not get right. As an investor and saver, you must keep yourself updated. The annual report of the Reserve Bank of India is one such document you must read. It is not just about the nation’s business. It matters because it gives a perspective about your money, deposits and investments.
Last year, the annual report mentioned the word ‘inflation’ 300 times. This year, it has gone down to 251 times. Similarly, the word ‘growth’ was mentioned 198 times last year. This year, it is mentioned 273 times. It may be simplistic to explain that RBI is concerned about growth. That could mean that the central bank’s monetary policy committee could focus on stimulating economic growth in the year ahead and not worry too much about inflation. It simply means that borrowing rates will likely trend down in the year ahead.
India reported better-than-expected GDP growth for the quarter to March 2025. The RBI attributes the promising growth outlook for 2025-26 to a revival in the consumption demand. That is related to goods and services we buy at home or in offices. While there is no significant jump in capital expenditure for 2025-26, the government will likely maintain it at a similar level for 2025-26. That means infrastructure spending will continue to remain a focus.
The government finances remain strong, with the fiscal deficit declining and marketing borrowing in check. These factors influence the future of interest rates. If the government borrows more to meet expenditures, it has an inflationary impact. However, interest rates will not be affected since the fiscal deficit and market borrowing are in check.
There is a lot of optimism emanating out of the bond markets. Foreigners have been buying Indian government bonds due to low interest rates in the US and Europe and high interest rates in India. That buying will likely push yields down further as India’s government bonds are now in major benchmark bond indices. The trend in the oil market also shows that international prices are going down. That is good news for India as it imports over 80% of the oil demand.
Despite such a strong performance and good news, many things are beyond India’s control. The headwinds primarily come from such factors. The RBI annual report flags uncertainty about global trade post-protectionist measures, geopolitical tensions and global financial market volatility as downside risks to the growth outlook and upside risks to the inflation outlook. For financial markets, the United States economy was a haven. US President Trump is shaking that belief with his trade policies. He is hurting friends and foes alike with tariffs. The global supply chain system is set to witness significant disruption. A section of credit rating agencies have stripped America of its haven status by downgrading the sovereign credit rating.
Gold prices remain high, and crypto assets are favouring traditional ‘haven’ treasury bonds. That shows a lot of fear in the global financial market system. The RBI annual report and the monetary policy documents that the RBI publishes once every two months give you a big-picture perspective on interest rates and economic growth.
The outlook for economic growth and inflation matter to your money more than anything that has already happened. If you track that regularly, you can make appropriate asset allocation. Your financial advisor may recommend holding more cash and gold than high-risk equity assets. The RBI documents, like the annual and monetary policy reports, can help you understand the latest trends and help with talking points for a meaningful conversation with your financial advisor.