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India has entered the latest phase of global turbulence from a position of relative strength, with robust economic growth, anchored inflation expectations and strong external-sector buffers helping shield the economy from recent energy shocks, the Reserve Bank of India (RBI) said.
In its latest monthly bulletin the central bank said a combination of resilient growth, steady fiscal consolidation, contained inflation and adequate foreign exchange reserves has left India better placed than many economies to weather mounting global uncertainties.
“India’s economy entered this current bout of global turbulence with much better fundamentals relative to many other countries,” the bulletin said.
The assessment comes at a time when policymakers worldwide are grappling with geopolitical tensions, volatile commodity prices and an uneven global growth outlook.
The RBI highlighted several factors underpinning India’s resilience, including sustained domestic demand, a manageable current account deficit, healthy foreign exchange reserves and the government’s ongoing efforts to improve fiscal balances.
The central bank’s assessment also helps explain the Monetary Policy Committee’s decision earlier this month to leave the benchmark repo rate unchanged at 5.25 per cent while maintaining a neutral policy stance.
Inflation remains below target
Retail inflation accelerated to 3.9 per cent in May from 3.5 per cent in April, according to official data. While the increase reflected some pressure from food and energy prices, inflation remained below the RBI’s medium-term target of 4 per cent.
The bulletin suggested that recent global energy-market disruptions have had only a limited pass-through to domestic prices, helping keep inflation expectations firmly anchored.
The RBI has repeatedly emphasised that price stability remains the cornerstone of its monetary policy framework, even as it seeks to support economic growth.
Growth momentum remains robust
The central bank also pointed to the economy’s strong growth trajectory, noting that gross domestic product expanded 7.8 per cent in the January-March quarter.
High-frequency indicators for April and May indicate that economic activity has remained resilient at the start of the new financial year, supported by strong domestic demand, healthy investment activity and continued government spending on infrastructure.
India remains among the world’s fastest-growing major economies, benefiting from resilient consumption trends and a gradual recovery in private-sector capital expenditure.
Strong external buffers support stability
The RBI said India’s external sector has remained resilient despite persistent global headwinds.
Steady foreign direct investment inflows, together with substantial foreign exchange reserves, continue to provide a crucial buffer against external shocks and financial-market volatility.
These strengths, the central bank said, have helped reinforce confidence in India’s ability to withstand fluctuations in global capital flows, commodity prices and currency markets.
Global risks still warrant caution
Despite its broadly upbeat assessment, the RBI cautioned that the global outlook remains fragile.
The bulletin noted that the interim US-Iran peace agreement has eased immediate fears of a wider conflict in West Asia, helping calm energy markets. However, it warned that risks remain elevated and that any deterioration in the situation could quickly reverse recent gains.
“Any breakdown could rekindle inflation pressures and disrupt trade, investment and commodity markets,” the bulletin said.
The RBI also clarified that the views expressed in the article are those of the authors and do not necessarily represent the central bank’s official position.
Even so, the bulletin reinforces the RBI’s broader assessment that India is better positioned than many economies to navigate the current wave of global uncertainty, with stable inflation, strong growth and sound macroeconomic fundamentals providing a solid cushion against external shocks.
With inputs from agencies.
