Indian economy vulnerable to energy price shocks amid West Asia conflict: RBI report
&imwidth=600&imheight=450&format=webp&quality=medium "Indian economy vulnerable to energy price shocks amid West Asia conflict: RBI report")
Strait of Hormuz. Photograph: (AFP)
RBI Governor Sanjay Malhotra said the Indian economy has remained resilient despite major external shocks, supported by strong growth, low inflation and healthy financial sector balance sheets.
The Reserve Bank of India (RBI) on Tuesday said the Indian economy and the financial system remain exposed to geopolitical tensions and related shocks, even as concerns over the West Asia conflict have eased following the signing of an interim peace deal between the United States and Iran.
In its latest Financial Stability Report, the central bank said India's financial system has remained resilient despite risks to global financial stability arising from the conflict.
However, it noted that the economy continues to face energy price shocks and supply chain disruptions because of its dependence on imported oil and other key commodities.
"However, the Indian economy remains exposed to energy price shocks and supply-chain disruptions given its high dependence on imported oil and other key commodities," the report said.
The RBI also warned, “Exchange rate volatility may rise if oil prices increase due to the delayed normalisation of supply chain disruptions and additional demand to replenish inventory.”
At the same time, the central bank said the interim peace agreement could support growth by easing supply chain disruptions. “The interim peace deal has laid the foundation for the cessation of this conflict and normalisation of supply chains, which could provide tailwinds to growth,” it said.
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In the foreword to the half-yearly report, RBI Governor Sanjay Malhotra said the Indian economy has continued to show resilience despite major external shocks.
“The Indian economy and the financial system have demonstrated remarkable resilience despite facing external shocks of significant magnitude. Strong growth, low inflation, healthy balance sheets of financial and nonfinancial firms, and ample buffers have helped preserve macrofinancial stability,” Malhotra said.
Meanwhile, the Union Finance Ministry, in its Monthly Economic Review, highlighted risks from uneven monsoon rainfall, emerging El Niño conditions and geopolitical uncertainty.
“The weak progress of the southwest monsoon has weighed on kharif sowing, and the monsoon rainfall deficit is a concern. Among the many things India needs to build buffers for in the coming years, water may be at the top of the list," the ministry said.
The report, released by the Department of Economic Affairs, said the Indian economy continues to remain resilient overall but added that signs of moderation in industrial activity and evolving inflationary pressures require closer attention.
“While easing oil prices and improving global supply-chain conditions may help alleviate some external pressures, uncertainties surrounding the monsoon and geopolitical developments in West Asia continue to pose downside risks to the growth and upside risks to the inflation outlook,” it said.
