India faces global challenges from a position of strength: RBI article

Signaling the risks of disruptive fallout from geopolitical hostilities, an RBI article said India is facing these challenges from a position of strength based on expanded immunization coverage, financial sector resilience and robust exports.

The “State of the Economy” article, published in the April 2022 RBI Bulletin, said that India is entering Samvat 2079 after peaking in the third wave of the pandemic with an upturn in economic activity in several sectors.

These gains are threatened, however, by the disruptive fallout from geopolitical hostilities, as increasingly evidenced by the imprints of inflation, tightening financial conditions and the terms-of-trade shock accompanied by portfolio outflows.

“India is facing these challenges from a position of strength based on expanded immunization coverage, financial sector resilience, robust exports and remittances, and reprioritization of budgets to boost health spending. investment in infrastructure,” he noted.

Going forward, boosting private investment remains a key area to support growth on a sustainable basis, he stressed.

The RBI, however, said the views expressed in the article are those of the authors and do not necessarily represent the views of the central bank.
The authors said the near-term global outlook looks bleak, caught in a whirlwind of rapidly materializing geopolitical risks, strained supply chains and an accelerating pace of monetary policy normalization.

They added that the Indian economy is not immune to these negative externalities.

Soaring commodity prices are already posing inflationary risks, including through soaring imports.

Rapidly widening trade and current account deficits coexisting with portfolio capital outflows are weighing on external sustainability, although the strength of underlying fundamentals and the stock of international reserves provide buffers.