Status quo, business as usual

As per most expectations, the Reserve Bank of India (RBI) kept the existing interest rate regime intact. It exuded confidence about the future GDP growth, and inflation rate, which will go up largely because of the prices of precious metals, which 0.6-0.7 per cent to prices. This approach, according to experts, indicates a contradictory assessment. Some say that the central bank is confident about the future, now that India has inked trade deals with the US and European Union, and there are less global tensions. This aligns with the recent budget, which talked more about the future, rather than the present, as if things are fine, with the country embarked on a safe growth journey.

Others feel that this hints at some sort of niggling worries that plague the monetary regulator, and policy-makers. Despite the good news, they are uncertain about what to expect in the future. The trade deals may leave exports intact, as they were in 2024, after 2025 proved to be highly chaotic, but increase imports, and put further pressure on the rupee. Growth may get derailed for various reasons, including the move to new calculations on how to calculate it. “However, the forthcoming new series for both GDP and CPI (retail inflation) will need close monitoring,” says Rajani Sinha, chief economist, CareEdge Ratings.

One is not sure if the inflation-precious metals linkages is forcing the RBI to think that the geopolitical conditions are still disruptive, or it is more apprehensive about global energy prices in 2026. Despite the bilateral trade deals being inked globally, with America, and among nations, the gold rise seems unstoppable, at least at present. This can mean that investors expect more disruptions in the future, or it may be a case of momentum buying because one does not wish to stop buying. Similarly, if the US forces India to stop buying Russian crude oil, which was denied by some officials, the import prices may rise as India will lose out on a hefty discount of $7 a barrel.

Thus, the central and finance ministry is being pulled in opposite directions. The one extreme leads to a picturesque good time for the economy, with higher growth, and inflation in control. The other looks at a scenario where the benign inflation can turn toxic, and growth can be lower due to the pressures on manufacturing, partially due to the trade deals. Farm incomes may be depressed in some segments, like food processing and a few crops, because of cheaper imports. Farmers unions are unhappy with the trade deals. Manufacturers are cagey, despite the official claims that a mere 2-3 per cent of the sectors, or segments in some sectors may be hit due to cheaper imports.

Despite the repeated insistence on self-reliance, ‘Make-in-India’, and atma-nirbharta, the trade deals signify the opposite trend. Easier imports may delay or derail private investments. Even the foreign firms may choose to import finished products, rather than make them in India. The fact remains that the country needs to make a transition from public investments to private ones, and the Centre is under pressure to slow down its capital expenditure. In 2026-27, as in 2025-26, despite the high budget allocations, the revised estimates, or actual public spending may be lower to manage the fiscal deficit. The revenue numbers are under pressure due to the past year’s tax changes.

This is slightly evident from the sudden onus on real estate. The budget emphasised on REITs, as well as how to monetise the surplus real estate with the state-owned entities through the same instrument. For example, in her speech, Finance Minister Nirmala Sitharaman said, “Over the years, REITs have emerged as a successful instrument for asset monetisation. I propose to accelerate recycling of significant real estate assets of CPSEs (central public sector) through the setting up of dedicated REITs.” According to Shishir Baijal, CMD, Knight Frank India, “The RBI’s decision to permit bank lending to REITs will evolve the funding ecosystem. It will serve as an additional avenue that diversifies the liability stack, and enhances refinancing flexibility.”

Some experts indicate that the central bank’s move on REITs will aid the budget measures. It will help the state-owned entities to raise funds through the surplus real estate that they own. This will prove to be a huge, and a new revenue source for the Centre, which is under pressure as far as this area is concerned. This explains why the revenue estimates for 2026-27 envisage a larger contribution through disinvestment (2.7 times 2025-26), and dividends from the RBI. According to a media report, “The Centre expects INR 3,16,000 crore in dividends and surpluses from the RBI, nationalised banks, and financial institutions… up 3.75 per cent….” The revised figure for 2025-26 on this account was INR 50,000 crore higher than budget estimate.

Over the past five trading sessions, after a fall of more than 1,800 points on February 1 (budget day; Sunday), the Sensex has gained more than 2,600 points. On Friday, it ended more than 260 points higher as investors felt that the RBI’s numbers augured well for the economy. Media reports indicate that the index posted its best gains during the week over the past three months. Yesterday, even laggards like ITC, which was saddled with huge excise duty on cigarettes (starting February 1), which will result in almost 30 per cent increase in the prices of king-size premium brands, was up more than 4.5 per cent.

Apart from interest rate, growth, inflation, and liquidity, the RBI governor addressed the issue of online frauds. The central bank plans to publish a discussion paper to enhance the safety of digital payments, which may include lagged credit, and additional authentication for specific classes of users like senior citizens. There will be draft guidelines on mis-selling, and loan recoveries. They will regulate advertising, marketing, and sales of financial products. Over the past few years, the central bank has shown growing concerns over online payments, as the digital ecosystem enlarges, and encompasses the masses. Most people pay via mobile for small payments of INR 10-15.

Most reactions to the RBI’s policy seem positive (see Sidebar on this page). However, there are a few disturbing notes. Despite the budget-RBI focus on real estate, some experts feel that the Centre is losing the plot on the real issue. Anuj Puri, chairman, Anarock Group, explains, “The RBI’s decision means that the ENIs for home loans will not change. This does nothing to lift demand, or make housing affordable. Demand for affordable housing remains challenged, and overall trends show that it remained considerably subdued in 2025.”