Mumbai: RBI has said that persisting uncertainties related to India-US trade policies continue to pose downside risk while inflation outlook for the near term has become more benign than anticipated earlier. The central bank’s ‘state of the economy’ report has, however, maintained confidence in India’s growth outlook and not lowered the estimate of 6.5% announced in the Aug policy. Citing the IMF, the report said risks to global growth were tilted to the downside despite an upward revision in projections. This uncertainty, it added, continued to pose a downside risk to India’s domestic outlook.Industrial activity remained subdued, dragged down by mining and electricity. At the same time, the manufacturing sector expanded and services sustained their growth momentum. India’s merchandise trade deficit widened to $27.3 billion in July 2025 from $24.8 billion a year earlier, mainly due to higher oil imports.Resource flows to the commercial sector increased, with large corporates increasingly meeting funding needs through market-based instruments such as commercial paper and corporate bonds.Domestic equity markets, the RBI said, were weighed down by weak corporate earnings and the US decision to impose higher import tariffs on Indian goods in July and early Aug. Foreign portfolio investors turned net sellers in both months, reversing two months of inflows, as equity outflows intensified amid global trade tensions and risk-off sentiment. “Steady inflows from domestic institutional investors, notably mutual funds, helped cushion the impact from net selling by foreign portfolio investors,” the report added.The central bank also highlighted the significance of India’s recent sovereign rating upgrade by S&P. “The S&P’s sovereign rating upgrade for India underpinned by buoyant economic growth, enhanced monetary policy credibility and government’s commitment to fiscal consolidation could potentially lead to a reduction in borrowing costs, greater investor confidence and higher foreign capital inflows, going forward,” it said.