India relatively less susceptible to external headwinds: RBI Bulletin

Although dampening global economic outlook could impact India’s economic growth through weaker external demand, domestic growth engines such as consumption and investment were relatively less susceptible to external headwinds, Reserve Bank of India (RBI) officials said in the April edition of the bank’s bulletin released on Tuesday. 

Stating an escalation of trade and tariff tensions and the resultant financial market volatility had raised concerns regarding the weakening of global growth in the near term, they said going forward, India was poised to benefit from supply-chain realignments, diversified FDI sources, and engagement with global investors seeking resilience and scale, given its already established trade linkages. 

“Moreover, India’s consistent strength in services exports and remittance inflows continues to provide a vital buffer for the current account,” they wrote in the State of the Economy article. 

“Prospects for the farm sector have been boosted by the forecast of an above normal southwest monsoon for 2025, which could augment farm incomes and keep food prices under check. Headline inflation moderated to a 67-month low of 3.3% in March, mainly due to a moderation in food prices,” they wrote. 

In the near-term, global growth outlook remains downcast, as uncertainty surrounding tariffs and the individual policy responses of different countries could result in lower investments spending, subdued consumer confidence, and a slowdown in global trade, they stated. 

“The long-term effects of these developments on the course of the global economy remain highly uncertain as there is still no clarity regarding the scope, timing and intensity of tariffs. 

Going forward, global financial conditions are likely to remain volatile and EMEs are vulnerable to feedback loops and spillovers which may lead to reigniting of global inflation,” they pointed out. 

Decline in global commodity prices, however, could ease pressure on inflation in commodity importing countries, although currency pressures could partly offset such benefits.

India’s strength to withstand these headwinds stem from its robust growth fostered by a strong macroeconomic framework and moderating inflation, with strong domestic engines of growth, they emphasised. 

“The agricultural sector in India is poised to sustain its momentum, supported by bumper kharif and rabi harvest and higher summer sowing amidst comfortable reservoir position. Risks emanating from the rise in temperature above normal levels and likelihood of heatwaves in the current summer season (April – June), however, needs to be monitored,” they wrote. 

Highlighting that industrial and services activity continue to remain resilient, they said results of a survey conducted among representatives from industry associations, including several industry bodies, credit rating agencies, and banks revealed optimism in economic activity supported by moderating inflation, sustained upswing in rural consumption and recovery in urban consumption.

“Global uncertainties, however, act as downside risks to this outlook,” they said.

Calibrated policy support could help India turn global volatility into an opportunity and strengthen its position in the emerging world economic landscape, they pointed out.