The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai.
Credit: Reuters Photo
Spillover effects from the slowdown in world trade, tighter monetary conditions, increasing fragmentation and geopolitical strife remain contingent risks to the Indian economy, the Reserve Bank of India said on Thursday.
In its biannual ‘Financial Stability Report’, the RBI noted that the impact of El Niño conditions could present a challenge to agricultural output and food prices.
Meanwhile, Commerce and Industries Minister Piyush Goyal said the Red Sea crisis has hit India’s exports of rice, while the impact on other sectors would be known once the monthly trade data is made available.
Geopolitical strife in the Middle East have escalated to tensions in the Red Sea region. Indian shipments to the Middle East, US and Europe have been affected.
“Red Sea disruption is a matter of fact,” Goyal told reporters at an event. “One industry that we know that has been affected is rice... But we will know all the details once we have the data for the current month,” he added.
Global headwinds pose the main risks to the outlook for the Indian economy, although macroeconomic stability is anchored by moderating inflation, ongoing fiscal consolidation and a modest current account deficit (CAD), the RBI said.
It also noted that the Indian banks are well capitalised and capable of absorbing macroeconomic shocks, that net non-performing assets (NPA) ratio of banks declined to a multi-year low of 0.8 per cent at the end of September 2023.
“Macro stress tests for credit risk showed that SCBs (scheduled commercial banks) have sufficient capital buffers and even under adverse stress scenarios their capital ratios will remain above the regulatory minimum,” the RBI said.
The RBI highlighted the continued improvement in external vulnerability indicators. Foreign exchange reserves of $616 billion as on December 15, 2023, are sufficient to cover about ten months of actual imports for 2022-23. External debt moderated to 18.6 per cent of GDP in June 2023; and the share of short-term debt in total external debt declined to 19.6 per cent in June 2023, the RBI said.
RBI Governor Shaktikanta Das said the central bank remains alert and committed to act early and decisively to prevent any build-up of risks. “The Reserve Bank and the other financial regulators remain invested in preserving financial stability and fostering a financial system that is resilient to shocks and supportive of growth,” Das noted in foreword to the report.