Demand driving growth, but economic outlook ‘somewhat clouded’ by supply issues: RBI

The Reserve Bank of India (RBI) reports that India's economic growth is primarily driven by domestic demand, but the near-term outlook is 'somewhat clouded' by supply-side pressures, particularly from the West Asia crisis. While headline inflation remains within the tolerance band, its pass-through to domestic prices needs monitoring. The external sector faces challenges from financial conditions, crude oil prices, and capital flows. Demand is broad-based, supported by rural markets and automobile sales, though overall petroleum consumption and air passenger traffic saw declines. Labor market conditions moderated in Q1 2026, with a rise in unemployment, especially in rural areas, despite an increase in regular salaried employment in secondary and tertiary sectors. Industrial activity showed resilience, but cost pressures and geopolitical spillovers affected manufacturing and services export orders.