India, a major importer of crude oil, remains vulnerable to volatility in crude oil prices and oil supply shocks, the article noted
Global economy hit by geopolitical tensions; India too facing tremors
Spurring private investment will be key for sustaining the economic growth momentum on a durable basis, said an article in the Reserve Bank of India’s (RBI) monthly bulletin, while flagging risks from the global geopolitical situation.
“Going forward, spurring private investment remains a key thrust area for sustaining growth on a durable basis,” said the article on State of the Economy in the RBI’s April Bulletin.
Growing uncertainty
Noting that the global economy is in the throes of a geopolitical cataclysm with heightened uncertainty obscuring the outlook, the article said India, too, is experiencing tremors from these developments.
“The fallout of the war and retaliatory sanctions is already evident in inflation prints and balance of payments development,” it said, adding that a few domestic factors, however, provide some measure of comfort.
“As India enters Samvat 2079, the third wave seems to be well behind us, and with the removal of all restrictions alongside a broadening of vaccination coverage, economic activity is returning to speed,” the article said, adding that most sectors of the economy are reaching or have exceeded pre-pandemic levels.
Global dynamics
The RBI, however, said views expressed in the article are those of the authors and do not necessarily represent the opinion of the central bank.
In the backdrop of these global dynamics arising out of the Russian invasion of Ukraine, the growth and inflation projections have been revised by the Monetary Policy Committee.
Real GDP growth has been revised downwards to 7.2 per cent for 2022-23 from the earlier projection of 7.8 per cent while inflation is now projected at 5.7 per cent in the current fiscal.
Inflationary risks
Globally, inflation continues to mount while turning more entrenched and broad-based across economies, the article said, adding that the ongoing geopolitical crisis and the fear of prolonged supply disruptions have accentuated inflationary risks.
“India, a major importer of crude oil, remains vulnerable to volatility in crude oil prices and oil supply shocks,” the article further noted.
“The near-term global outlook appears grim, caught up in a vortex of geopolitical risks materialising rapidly, strained supply chains and the quickening pace of monetary policy normalisation,” it further said, adding that emerging market economies are bracing up to contend with swift shifts in risk sentiments and tightening of global financial conditions that could produce real economy consequences which may thwart incipient recoveries.
Other factors
Indian economy is not immune to these negative externalities. “The surge in commodity prices is already posing inflation risks, especially through the conduit of surging imports,” it further said, while also noting that India faces these challenges from a position of strength built on broadened vaccine coverage, financial sector resilience, robust export and remittances and fiscal reprioritisation to spur capital spending on infrastructure.
Significantly, the article also highlighted the heat wave raging across the country. “The increasing frequency of these unseasonal fluctuations reveals the impact of climate change and underscores the urgency of reductions in carbon footprints and integrating the relevant climatic variables in the development strategies,” it noted.
“The near-term global outlook appears grim, caught up in a vortex of geopolitical risks materialising rapidly, strained supply chains and the quickening pace of monetary policy normalisation,” the bulletin said.
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