RBI State of the Economy Report

April 20, 2022

The Reserve Bank of India (RBI) in its ‘State of the economy’ report cautioned that the surging commodity prices are causing inflation risks, especially through the surging of imports. The ever-growing widening of current and trade account deficits along with the portfolio capital outflows is putting pressure on external sustainability despite the fact that the underlying fundamentals and the stock of international reserves are providing buffers.

Overview:

In March, retail inflation has gone up to 6.95 percent.
The inflation in food and beverages rose to 7.5 percent in March from 5.9 percent in February was the main driver of retail inflation.
According to the report, the country is also reeling from the global crisis caused due to the Russian invasion of Ukraine.
Due to the war and related retaliatory sanctions are causing a rise in inflation.
The repo rate was kept unchanged by the RBI in the April monetary policy review but it has initiated the normalization process of the accommodative policy.

About near-term global outlook

According to the report of the RBI, the near-term global outlook appears to be quite grim as it has been caught up in a whirlpool of geopolitical risks that has rapidly materialized, the fast pace of the normalization of the monetary policy, along with strained supply chains.

About the Indian Economy

According to the report, the emerging market economies across the world are bracing up to contend with these rapid changes in the tightening of global financial conditions that can create real economic consequences thwarting recoveries post-pandemic and can also rocket inflation and economic downturns. The Indian economy is also not immune to these negative factors. India is facing these challenges from a position of strength that was built on financial sector resilience, broadened vaccine coverage, remittances, robust export, and fiscal reprioritization to spur infrastructure-related capital spending. The report further states that going forward, private investment is a must for sustaining growth on a durable basis.

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