RBI Governor Flags West Asia Crisis and Weak Monsoon as Key Risks to Growth
Reserve Bank of India (RBI) Governor Sanjay Malhotra has identified the ongoing West Asia crisis and the possibility of a weak monsoon as significant risks to the country's economic growth. In an interview with DD News, he emphasised that despite global uncertainties, India's macroeconomic fundamentals remain robust.
Mr. Malhotra noted that India has recorded over 7% growth in recent years, with the last financial year clocking 7.7%, supported by strong fundamentals. The RBI has projected a GDP growth of 6.6% for the current financial year, factoring in various challenges.
On inflation, the governor stated that the central bank has revised its inflation forecast for FY27 to 5.1%, up from the earlier estimate of 4.6%. Retail inflation in June rose to 4.38% from 3.93% in May, primarily driven by costlier food items. Food inflation increased to 5.32% in June from 4.78% in May. Mr. Malhotra attributed the rise mainly to supply-side factors.
Highlighting the importance of the monsoon, Mr. Malhotra said that its behaviour is crucial as a large population depends on agriculture, which contributes about 17% to GDP. He called for vigilance on this front.
Regarding the rupee, the governor noted that despite a stronger dollar and heightened global uncertainty, the domestic currency's performance against peers remains stable. He said that after the war in West Asia, the dollar strengthened, weakening many currencies, but the rupee's situation can be considered normal in a global perspective.
On foreign direct investment, Mr. Malhotra revealed that gross FDI last year was around $95 billion, a record. Net FDI in the first two months of the current financial year stood at about $7 billion. He asserted that in the medium and long term, India's balance of payments and external sector will remain strong, alleviating any need for concern.
The governor reiterated that the RBI will continue to prioritise inflation control while supporting economic growth, as low and stable inflation provides the foundation for sustainable growth. Under the flexible inflation-targeting framework, inflation control remains the primary objective, with growth as a secondary objective, but they are not in opposition and support each other.
On credit growth, Mr. Malhotra said it remains broad-based across sectors, with overall bank credit growing around 18% year-on-year in June, compared to 17.5% in May.
Regarding artificial intelligence, the governor said the RBI has encouraged banks to adopt AI to improve customer service, lower operating costs, and enhance decision-making, while ensuring safeguards against cybersecurity and data privacy risks. Earlier this week, he urged bank chiefs to leverage advanced technologies like AI to expand reach, with robust cybersecurity and safeguards against fraud and data misuse.
