High crude oil prices, along with volatile financial conditions and slow capital inflows, continue to pose risks to India’s external sector outlook amid the ongoing West Asia crisis, the Reserve Bank of India’s (RBI) latest monthly bulletin indicated on Friday.
The global economy remains clouded by uncertainties stemming from the West Asia conflict, it noted. However, it highlighted that the Indian economy has demonstrated resilience despite persistent geopolitical and trade-related headwinds.
“Robust services exports, positive net foreign direct investment (FDI) flows, strong foreign exchange reserves, and proactive policy measures by the government and the RBI are likely to cushion the Indian economy against external shocks,” an article in the bulletin said.
The West Asia conflict continued to exert upward pressure on commodity markets, global trade flows, and supply chains, contributing to volatility in financial markets, an article on the state of the economy published in the bulletin said. Despite these challenges, India has entered this period from a position of macroeconomic strength, with domestic demand continuing to drive economic growth.
The bulletin cautioned that the near-term outlook is clouded by supply-side pressures. While headline inflation remains comfortably within the tolerance band, the pass through to domestic prices needs to be monitored.
The high-frequency indicators for April suggest that domestic economic activity-maintained resilience, with the industrial and services sectors showing strength across several segments, the bulletin said. In agriculture, summer sowing has progressed well, supported by above-normal pre-monsoon rainfall and comfortable reservoir levels. However, higher-than-normal minimum temperatures and unseasonal rains in some regions could pose risks to the harvesting of the remaining rabi crops, it said.
On the currency front, the bulletin underlined that the Indian rupee (INR) witnessed a depreciation in April, though the decline was moderated by a temporary ceasefire announcement and RBI interventions. “Thereafter, the INR broadly mirrored the movement in crude oil prices, reflecting the developments in West Asia. In real effective terms, the Indian rupee depreciated in April due to depreciation of INR in nominal effective terms and relatively lower price index in India vis-à-vis its major trading partners,” the bulletin said.
It noted that global economic conditions remain fragile, shaped by elevated geopolitical tensions, high energy costs, and uncertainty over the growth and inflation trajectory. Globally, economic activity showed modest improvement in April compared to March, but the pace of expansion remained subdued amid rising input costs, supply chain bottlenecks, and weak business sentiment, the bulletin said. “Constricted shipping routes and trade flows increased supply chain pressures to their highest levels since 2022.”
TOPICSCrude oilThis article was first uploaded on May twenty-two, twenty twenty-six, at thirty-one minutes past eleven in the night.