Risks from global developments have thwarted India’s recovery momentum: RBI bulletin

Our Bureau | Updated on: May 17, 2022

FILE PHOTO: A security guard's reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai, India, June 6, 2019. REUTERS/Francis Mascarenhas/File Photo | Photo Credit: FRANCIS MASCARENHAS

India faces challenges in building from the scars of the pandemic

The Indian economy’s recovery remains resilient, although risks stemming from global developments have thwarted the momentum, according to an article in the Reserve Bank of India’s latest monthly bulletin.

India faces challenges in building from the scars of the pandemic through larger investments in health and productivity of the human capital, per the article “State of the Economy”, put together by 22 senior RBI officials.

“The Indian economy consolidated its recovery, with most constituents surpassing pre-pandemic levels of activity.

“Heightened global risks stemming from weakening growth, elevated inflation, supply disruptions on account of geopolitical spillovers and financial market volatility stemming from synchronised monetary tightening pose near-term challenges,” the officials said.

Global growth outlook grim

The officials observed that global growth outlook appears grim as geopolitical tensions linger, commodity prices remain elevated and withdrawal of monetary accommodation gathers speed.

“Emerging economies face risks of capital outflows and higher commodity prices feeding into inflation prints. Meanwhile, the pandemic continues to impinge on near-term economic prospects,” they said.

In order to achieve a higher growth path on a sustainable basis, the authors felt that private investment needs to be encouraged through higher capital expenditure by the government which crowds in private investment.

Improving infrastructure, ensuring low and stable inflation and maintaining macroeconomic stability are critical for reviving animal spirits and spurring growth, they added.

Inflation risks

Referring to inflation risks becoming more accentuated in recent months, the authors opined that the increase in international commodity prices also imparts a net terms of trade shock that is widening the trade and current account deficits.

Meanwhile, the country’s foreign exchange reserves at $596 billion as on May 6were equivalent to about 10 months of imports projected for 2022-23, the bulletin said

Published on May 17, 2022
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