Business

Economy faces spillovers from conflict; biz confidence up: RBI

While India’s macroeconomic fundamentals remain strong, the unfolding global developments — Russian invasion of Ukraine — pose downside risks in terms of spillover, the Reserve Bank of India (RBI) said.

“The ongoing geopolitical crisis has heightened the uncertainty clouding the global macroeconomic and financial landscape even as the world economy struggles to recover from the pandemic,” the RBI said in its ‘State of the economy’ report.

As the conflict escalates, oil and other commodity prices are blazing to multi-year highs, and financial markets are on edge, driven by massive sell-offs. “Amidst these testing times, the Indian economy is experiencing spillovers as it recovers from the third wave of the pandemic,” the RBI said.

On the other hand, the RBI said consumer and business confidence are rising alongside improvement in demand conditions. On the supply side, a resilient farm sector and a sustained retrieval in both industrial and services sectors are broadening the recovery, it said.

The RBI said the escalation of geopolitical risk, surge in crude oil prices and intensified volatility across global financial markets may smother the embryonic global recovery. This shock has also hit at a time when inflation is elevated in many countries. Moreover, with monetary policy normalisation imminent, global financial conditions could tighten further, the report said.

At the receiving end are emerging market economies (EMEs), already reeling under currency depreciation, massive sell-offs by foreign portfolio investors and slowing growth, the RBI said.

It said spiralling oil and gas prices and unsettled financial market conditions pose fresh headwinds to the still incomplete global recovery. “Amidst these testing times, India is making steady progress on the domestic front as it recovers from the third wave. India’s macroeconomic fundamentals remain strong. Unfolding global developments nevertheless pose downside risks in terms of spillovers,” the report said.

The RBI said mobility around retail and recreation activity, grocery and pharmacies, parks, workplaces and transit station is above pre-pandemic levels.

According to the report, mobility indicators show significant improvement in March 2022 as compared with a year ago. Apple mobility index was also higher in March (till March 4). With the improvement in mobility and opening up of services sector outlets, electricity generation picked up in March, exceeding the levels of the preceding month and also pre-pandemic levels, the RBI said.




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