West Asia conflict, unpredictable monsoon pose significant growth threats: RBI Governor
The RBI has raised its FY27 inflation estimate to 5.1 per cent, citing supply-side pressures and rising food prices
Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday said there are serious threats to economic development due to West Asia conflict and the expected weak monsoon.
“Despite global uncertainties, India has witnessed an over 7 per cent growth rate in the past few years. Last financial year, India clocked a growth rate of 7.7 per cent supported by strong and robust macroeconomic fundamentals,” he said.
He stated that RBI has predicted a GDP growth of 6.6 per cent for the current fiscal year despite a number of challenges.
The governor continued, “We are seeing high GDP growth because of strong monetary and fiscal policies.”
He stated that the central bank’s inflation estimate for FY27 has been increased from 4.6 per cent to 5.1 per cent.
Malhotra pointed out that supply-side factors were primarily responsible for June’s inflation exceeding the Reserve Bank’s median objective of 4 per cent.
Retail inflation increased from 3.93 per cent in May to 4.38 per cent in June mainly due to higher food prices.
Food inflation rose from 4.78 per cent in the previous month to 5.32 per cent in June. Another risk element, according to Malhotra, is the monsoon’s behaviour, as a sizable portion of the population depends on agriculture.
He stated that “we have to be vigilant about that (monsoon)” and that agriculture accounts for roughly 17 per cent of the GDP.
Regarding weakening of the rupee, Malhotra stated that despite a stronger dollar and increased global uncertainty, the domestic currency’s performance against peers is still stable.
On the rupee depreciation, Malhotra said the domestic currency performance against peers remains stable despite a stronger dollar and heightened global uncertainty,” added Malhotra.
He stated that the net foreign direct investment in the first two months of the current fiscal year was approximately USD 7 billion, whereas gross FDI was approximately USD 95 billion last year, setting a record. Our external sector and balance of payments will continue to be robust throughout the medium and long terms. “Don’t worry,” he said.
Malhotra further added that low and steady inflation serves as the basis for sustained growth and that the RBI will continue to prioritise inflation while promoting economic growth.
