“Marginal impact” of war in Ukraine on Indian economy, says RBI governor
India’s economy is much better placed today and there will be a “marginal impact” from the war in Ukraine, RBI Governor Shaktikanta Das said Monday, addressing industrialists at the National Council meeting of the Confederation of Indian Industry of the CII.
Speaking about the economy and the risk of stagflation, Mr Das said the Indian economy is in much better shape today.
“India is a long way from such a prospect. You have to look at targets. We expect inflation in India to moderate. I don’t see a situation in India where inflation continues to skip the margin we set,” he said.
The impact of Ukraine will be marginal on the growth target. Let’s not forget when you make crude oil based commodity price assumptions; you assume that the figure will persist for 365 days.
The situation today is uncertain. The prospect of stagflation in India is not present at all volatilities, the RBI governor added.
Asked about concerns about a wider current account deficit due to the rise in oil prices caused by the war between Russia and Ukraine, as well as supply concerns, he said India is in a comfortable position to deal with to the challenge of financing the current account deficit.
We are confident that we can meet any new challenge, he added.
In terms of liquidity, he said that the central bank has injected 17 lakh crore in the past two years and will provide enough funds that the economy needs.
The top industrialists who attended the event were Adi Godrej, TV Narendran, Sanjeev Bajaj, Keki Mistry of HDFC Bank and other top industry figures. They will communicate with the governor about issues facing the industry as they emerge from the pandemic.
Banks are well capitalized with a system-level solvency ratio of 16; gross non-performing assets (NPAs) fall to a record low of 6.5 percent, the RBI governor said.
The trends towards globalization are being challenged; there are malfunctions. But the world will recalibrate to meet challenges, he said.
At the RBI, we monitor several high-frequency indicators: more than 60 high-frequency indicators are tracked. And most are in green, the governor said.
The Russia-Ukraine conflict has shaken crude oil markets, with Brent crude rising more than 3 percent Monday to above $112 a barrel amid supply concerns.
Das said the rise in the price of crude oil would drive the world towards green energy.
“The oil crisis caused by the Ukraine issue will push more rapidly towards renewable energy. We will see a faster transition to green and renewable energy due to crude oil shortages,” said the RBI governor.
Investment in fossil fuels will revive and many will be forced to ramp up the supply. In India we have our transition path to green energy.
When asked at the National Infrastructure Finance Bank, the governor said: “Rs 20000 crore is the beginning. It is not the end. It is open for the government to act. Although there is more than nine times leverage, risks must be taken into account.”
The government takes the debt ratio into account. Each authority must also ensure stability and sustainability while looking at growth. We took a very thoughtful call. If the situation calls for it, we will do it, he said.
On sanctions and the impact of reserves, Mr Das said, “To quote our Prime Minister, India does not believe in expansion and our reserves are diversified. We do not foresee sanctions. Why talk about a problem that does not exist? Our reserves are good for it.”
Speaking about the risks of the US Federal Reserve’s rate hike last week and the expected aggressive course of the rate hike, Mr Das said the spillover effects from the US Fed rate hike remain mixed. Last year we stopped buying assets; we are ahead of the US and others in that regard.
“Two of the largest economies are moving in different directions. We will be able to maintain the stability of the Indian rupee regardless of spillover effects,” he added.
