Mumbai, May 30 -- A rise in input cost pressures in manufacturing, global protectionism in trade policies, geopolitical tensions and subdued demand pose risks to India's economic growth, the Reserve Bank of India (RBI) said in a report Thursday. RBI's annual report for FY25 said India's economic activity picked up pace in the second half of the last financial year on the back of an uptick in domestic demand, increase in exports of goods and services, and a buoyant agriculture sector. The global environment has been tough, with tariffs creating a great deal of uncertainty, it said. US President Donald Trump came to power on 20 January, promising stiff tariffs on friends and foes, industrial jobs revival and a loose fiscal policy. In April, he announced reciprocal tariffs on a host of nations, only to announce a three-month pause soon after. The central bank said in FY26, markets will closely track the implications of tariff policies of the US and reciprocal measures by others, as an uncertain policy environment may instil volatility in global financial markets. "Following a correction in the second half of 2024, Indian equity markets are expected to remain resilient amidst stable macroeconomic conditions and moderation in equity market valuations, although geopolitical uncertainty poses downside risk." The US Court of International Trade on 28 May ruled that President Donald Trump's baseline tariffs and country-specific duties were illegal, as they were not justified under the International Emergency Economic Powers Act. Experts say the blocking of Trump's tariffs is positive news for the markets. According to the RBI, the domestic economy showed resilience in 2024-25, supported by robust "macroeconomic fundamentals and proactive policy measures, amidst persisting geopolitical tensions and geoeconomic fragmentation." It said that headline inflation moderated, although the pace of disinflation was hurt by elevated and volatile food inflation. "Deposit and credit exhibited double-digit growth. Fiscal consolidation continued both at centre and state levels. The continued strength of the external sector, as reflected in adequate forex reserves and modest current account deficit, supported macroeconomic and financial stability," it said. The Indian economy is poised to sustain its position as the fastest-growing major economy during FY26, supported by a pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions, and the government's continued thrust on capital expenditure, according to the Reserve Bank of India. "The easing of supply chain pressures, softening of global commodity prices and higher agricultural production on the back of a likely above-normal south-west monsoon augur well for the inflation outlook in 2025-26," the central bank said. Uncertainty regarding the evolution of trade tariff policies could lead to "sporadic episodes of volatility" in global financial markets. Further, the export sector is also expected to encounter some headwinds from rising geopolitical tensions, inward-looking policies and the risk of a potential tariff war among major economies....