Mumbai, Mar 23 (PTI) India needs to closely monitor the evolving situation in West Asia and take proactive measures to limit the impact of spillovers, as the country is dependent on crude oil imports, the Reserve Bank’s bulletin said on Monday.
The March bulletin, however, noted that India’s foreign exchange reserves remain adequate to provide a cushion against external shocks, and the creation of an Economic Stabilisation Fund would further provide fiscal headroom and buffer to proactively respond to global headwinds.
An article on the state of the economy published in the March bulletin stated that the conflict in the Middle East and fresh trade investigations by the US have resulted in increased volatility in the global markets, said an article The renewed conflict in the Middle East and the US investigations into trade practices of key trading partners have brought uncertainties regarding global energy security, US import tariffs and global supply chains back to the centre stage, it said.
The article cautioned that a prolonged period of war and high uncertainty would be detrimental to the broader global outlook, which was already in a state of flux prior to the recent events.
“…given India’s external dependence on crude oil, the evolving situation requires close monitoring and proactive measures to limit adverse spillovers,” the article said.
It, however, added that the capacity and resilience of the Indian economy to absorb external shocks have strengthened over time, buttressed by its strong growth, sound macroeconomic fundamentals and robust external sector buffers.
In terms of energy security, India has progressively diversified its crude oil import sources and augmented its domestic refining capacity.
Since the start of the conflict, several policy measures have been implemented to blunt the immediate impact of the disruptions in global fuel supply chains and to achieve more effective use of domestic capacity to meet shortfalls, the bulletin article added.
It further said the second advance estimates of GDP for 2025–26 indicate sustained resilience of the Indian economy.
High frequency indicators signal towards economic activity gaining momentum in February. CPI headline inflation picked up in February on account of food and beverages.
“System liquidity has remained comfortable and the total flow of financial resources to the commercial sector rose, with a rise in financing from both the bank and non-bank sources,” it said.
As regards global uncertainty, it said that after retreating for four consecutive months, rose again in February with an uptick in trade policy uncertainty, following the verdict of the US Supreme Court on import tariffs.
Since end-February, the geopolitical tensions in the Middle East intensified into a major conflict causing significant disruption to key oil infrastructure and critical energy corridors due to the closure of Straitof Hormuz..
Alongside, the US administration has also launched fresh probes into trade practices by major trading partners. All these factors have resulted in increased volatility across the various commodity and financial markets, the article said.
The central bank, however, said the views expressed in the Bulletin article are of the authors and do not represent the views of the Reserve Bank of India. PTI NKD NKD MR
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