External spillovers could dampen India's growth outlook, says RBI governor Sanjay Malhotra
Despite India's strong domestic drivers and fundamentals, spillovers from external challenges and weather-related events could impact growth, said Sanjay Malhotra, governor of the Reserve Bank of India (RBI), on Monday.
In the foreword to the central bank's half-yearly Financial Stability Report, Malhotra said that while there are downside risks to the growth outlook, inflation is benign.
'...there is greater confidence in the durable alignment of inflation with the RBI's target,' he said, referring to the banking regulator's medium-term target for consumer price index (CPI) inflation of 4%, within a band of +/- 2%.
Retail inflation cooled to its lowest level in over six years in May, aided by a moderation in food prices. Inflation as measured by the CPI stood at 2.82% year-on-year, as against 3.16% in April.
Mint reported on 12 June that this softening was the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.
On growth, Malhotra said in May, while announcing the monetary policy decision, that gross domestic product (GDP) growth remains lower than aspirations, but the central bank retained its forecast at 6.5% for 2025-26. The economy expanded 6.5% in 2024-25, the slowest in four years, showed data released at the end of May.
'The announcement of large tariffs by the US administration in April has set in motion a new paradigm in trade and economic policy. Geopolitical risks remain elevated,' said Malhotra.
He added that ensuing policy uncertainty and unpredictability will influence global growth, with international agencies, including the IMF (International Monetary Fund), the OECD (the Organisation for Economic Co-operation and Development) and the World Bank, have revised growth downwards.
Near-term global financial stability risks have increased, according to the governor.
'There are many structural shifts that are reshaping the global economy, including growing fragmentation in trade, rapid technological disruption, ongoing climate change and protracted geopolitical hostilities.'
The recent conflict between Israel and Iran led to a spike in oil prices, which have since cooled. For India, which imports close to 90% of its energy requirements, any sustained rise in oil prices will inflate the import bill, while the pass-through to consumer inflation would depend on whether refiners absorb the cost or not.
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