Macro Economic Overview

Inflation across BRICS nations has continued to moderate, with India’s headline CPI inflation remaining benign at 1.3% in December; below the RBI’s lower tolerance band for the fourth consecutive month. RBI has an inflation projection to 2.1% in FY26 with H1-FY27 estimates expected to remain modest at ~4%.

YoY% change in Consumer price inflation for BRICS

India's fiscal health appears to be on a path of consolidation and stability, with the government demonstrating a commitment to fiscal responsibility while continuing to prioritize economic growth. The key deficit indicators of the union government, viz., gross fiscal deficit (GFD), revenue deficit and primary deficit witnessed an improvement during April-June 2025 over the corresponding period of the previous year.

General Government Fiscal Balance as a Percentage of GDP

Note:
1) Data for India is for the respective fiscal years. For example: 2024 pertains to the fiscal year FY25 (April 2024 to March 2025) and so on. For all other countries, the data pertains to calendar year.
2) Definition of General Government fiscal balance as a % of GDP: IMF defines this as Net lending (+)/ borrowing (-) is calculated as revenue minus total expenditure. This is a core GFS balance that measures the extent to which general government is either putting financial resources at the disposal of other sectors in the economy and nonresidents (net lending), or utilizing the financial resources generated by other sectors and nonresidents (net borrowing). This balance may be viewed as an indicator of the financial impact of general government activity on the rest of the economy and nonresidents (GFSM 2001, paragraph 4.17). Note: Net lending (+)/borrowing (-) is also equal to net acquisition of financial assets minus net incurrence of liabilities.
3) General Government includes Centre, States and Local Governments.
4) Positive balance indicates surplus, negative balance indicates deficit.
5) Projections for Brazil, France, India, Japan and UAE start after year 2023 and for all other countries it starts after 2024.

Source: IMF World Economic Outlook – April 2025

In 2025 policy rates have broadly trended lower across BRICS economies, with Brazil and Japan as key exceptions. In the final quarter of 2025, major economies, barring Japan have either remained status quo or cut policy rates. In India, policy rates have declined by 125 bps in CY2025, with the RBI delivering a 25-bps cut in December after maintaining rates steady in the August and October MPC meetings. RBI maintained its repo rate at 5.25% in the February 2026 MPC meeting.

Nominal policy repo rate

India’s PMI indices remained in expansionary phase, signalling steady underlying momentum. Manufacturing and Services PMI have been in the expansion zone for over four years and the 12-month average of 57.6 and 59.6 respectively, reflecting broad-based activity expansion across both sectors. Notwithstanding the sustained expansion, both PMI indices has moderated in recent months.

Trends in India’s PMI Manufacturing, Services and Composite Index

India’s foreign exchange reserves, the fifth largest in the world, rose marginally to US$ 723.8 bn in Jan-26, strengthening buffers against external vulnerabilities. The rupee depreciated by 7.1% in FY26(April-Jan), hitting fresh record lows in recent months and even crossing the Rs 92/$ mark, amidst a relatively stronger US dollar, sustained FPI outflows and heightened global uncertainty.

Monthly Trends in India’s forex reserves and 12M rolling average exchange rate