MUMBAI: The Indian economy remains resilient despite external headwinds, but below-normal monsoon prospects, higher crude oil prices, geopolitical tensions and global trade uncertainty pose risks to growth and inflation, according to the State of the Economy article in RBI’s Aug bulletin.The assessment also pointed to firm domestic demand, improving industrial activity and strong corporate profitability as supports for growth.This is the second hawkish statement to come from the central bank. Earlier, the minutes of the monetary policy committee meeting revealed that MPC members saw possibility of a rate hike in future. “Domestic demand remained strong in July, supported by rural demand. Retail automobile sales accelerated, led by stronger tractor and two-wheeler sales… Urban demand also remained firm,” the article said. Vehicle and tractor sales were among the indicators pointing to sustained demand.Industrial activity also remained supportive. PMI data showed that firms’ expectations for future output improved, pointing to a positive outlook for demand and new business opportunities. The economy, the article said, “continued to display strength notwithstanding these headwinds”, while retail inflation in Q1:2026-27 reflected limited pass-through of cost pressures and growth remained resilient.Inflation, however, has begun to face pressure from food prices. Headline CPI inflation increased marginally in July, driven by food and beverages. “High-frequency data suggest a broad-based sequential increase in food prices,” with rice and wheat prices continuing to rise, prices of major pulses edging up and edible oil prices recording broad-based increases. While headline inflation rose fractionally, core inflation remained stable. The article said the increase in headline inflation was primarily due to supply-side pressures and that stable core inflation indicated limited pass-through of cost pressures.The IMD has forecast below-normal rainfall for the second half of the season in August and September. A weak monsoon could affect agricultural output and add to food inflation pressures.Input costs also remain elevated. “Industrial and farm input cost inflation moderated, but remained elevated,” the article said.