India Better Placed To Absorb Shocks : RBI Bulletin
The central bank also said that 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: Reports
MUMBAI: The Reserve Bank of India (RBI) on Monday backed the government’s proposed ₹573-billion economic stabilisation fund, which aims to address supply chain disruptions and unexpected economic shocks.
Finance Minister Nirmala Sitharaman had earlier said the fund would act as a buffer against external uncertainties.
The central bank in its March Bulletin said that the creation of an economic stabilisation fund would provide fiscal headroom and help India respond proactively to global headwinds, even as it flagged
risks from ongoing geopolitical tensions and oil price volatility.
It called for close monitoring and proactive measures to limit adverse spillovers due to the West Asia crisis even though it 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.
The central bank also said that 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. It said
that 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.
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 creation of an Economic Stabilisation Fund would further provide fiscal headroom and buffer to proactively respond to global headwinds,” said the RBI in the March Bulletin.
On the currency front, the RBI said it had resumed net dollar purchases in January after eight months, buying $2.52 billion on a net basis. Overall, the central bank purchased nearly $28 billion and sold $25.47 billion during the month, even as the rupee remained under pressure from global factors, including geopolitical tensions and foreign outflows.
