EU, US Trade Deals to Boost Indian Economy; Growth Resilient: RBI Bulletin

India's free trade deals with the European Union and the US are likely to play a significant role for the economy in the coming years, as foreign portfolio investments and the rupee staged a comeback post the two announcements, the RBI's bulletin said on Friday.

An article published in the Reserve Bank's February bulletin also emphasised that the domestic economy remained resilient, with quarterly results of listed private companies showing strengthening of aggregate sales growth.

Industrial activity remained strong, and the services sector sustained its healthy growth.

The Union Budget 2026-27 reaffirmed the government's commitment to fiscal consolidation without diluting the focus on long-term growth, with stepped-up allocation towards capital expenditure, said the article on the state of the economy.

The completion of the India-EU free trade negotiations at the end of January and the subsequent interim trade agreement between India and the US are likely to play a significant role in the coming years by improving market access, enhancing export competitiveness, and integrating Indian firms more deeply into global value chains, it said.

"In the immediate term, it has led to a change in investor sentiments. Foreign portfolio investment into the equity and debt segment staged a comeback in February," it added.

India concluded landmark deals with two of its major trading partners within a month. India and the EU concluded a free trade agreement on January 27.

The interim trade deal with the US was announced on February 7.

"With these agreements in place, the labour-intensive sectors and export-oriented industries in India are expected to receive major support," the article said.

On the fiscal front, the article said the continued commitment to fiscal consolidation and debt sustainability signals prudent macroeconomic management.

The gradual reduction in the fiscal deficit, combined with a sustained emphasis on capital expenditure, is expected to crowd in private investment and improve productive capacity, it said.

Support to states for capital investment is also likely to reinforce subnational growth and infrastructure development, it added.

"The near-term economic outlook for the economy remains favourable and is well-positioned to sustain its high growth momentum, driven by consumption, investment, and productivity-enhancing reforms," it said.

Further, inflation is expected to remain benign and near the inflation target, providing a positive growth inflation balance in the near term.

The central banks said the views expressed in the bulletin article are those of the authors and do not represent the views of the Reserve Bank of India.

Meanwhile, data published in the bulletin showed that the RBI net sold USD 10.02 billion in December due to higher volatility in the Indian rupee amid geopolitical tensions and uncertainties over US tariffs.

December becomes the seventh consecutive month of net dollar sales by the central bank in the spot currency market.

The central bank net sold USD 9.71 billion in November, USD 11.877 billion in October, USD 7.910 billion in September, USD 7.69 billion in August, USD 2.54 billion in July, and USD 3.66 billion in June.

The central bank had bought USD 1.76 billion from the spot currency market in May.

Indian rupee remained in extreme stress in most months of 2025 and in January 2026, due to various issues, such as foreign portfolio flows turning intermittent. Persistent merchandise trade deficits, coupled with periods of capital outflows, have weighed on the currency.