Slowdown in global growth to hurt India's domestic outputs: RBI report
A deceleration in global growth will act as a drag on domestic output. It is estimated that a 100 basis points (bps one bps is 0.01%) slowdown in global growth can pull down India's growth by 30 bps, the FSR said.
The headwinds from protracted geopolitical tensions, elevated uncertainty and trade disruptions, and weather-related uncertainty pose downside risks to growth. ' External spillovers and weather-related events could pose downside risks to growth' said governor Sanjay Malhotra, in the Foreword to the latest Financial Stability Report (FSR) .
Overall, while the broader financial system remains resilient, there is some build-up of stress primarily in financial markets on account of global spillovers. This is reflected in the marginal rise in the financial system stress indicator (FSSI), an indicator of the stress level in the Indian financial system, compared to its position in H1:2024-25, the report said
The outlook for food inflation remains favourable on account of softening prices and robust crop production. Moreover, the risk of imported inflation largely remains low with the anticipated slowdown in global growth likely to soften commodity and crude oil prices, although the recent escalation of geopolitical tensions in the Middle East has led to heightened uncertainty, the report said.
The near-term and medium-term outlook gives greater confidence of a durable alignment of headline inflation with the target of 4%, and it is likely to undershoot the target at the margin as per the projections of the RBI, according to the FSR. ' The outlook for inflation, on the other hand, is benign and there is greater confidence in the durable alignment of inflation with the Reserve Bank's target.' said Malhotra.
The resilience of the external sector has been a key contributing factor to India's macroeconomic and financial stability. Current account deficit (CAD) at 0.6 % of GDP during 2024-25 remains eminently manageable, supported by sustained buoyancy in services exports and remittances. Moreover, current account balance turned into a surplus of 1.3% of GDP during January-March 2024-25.
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