Strong Macros And Stable CAD To Shield India From Global Volatility, Says RBI Governor

New Delhi, Aug 5 (KNN) Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said India’s strong macroeconomic fundamentals and a manageable current account deficit (CAD) will help cushion global shocks, including West Asia tensions and crude price volatility.

Speaking to ANI at the post-Monetary Policy Committee (MPC) press conference in Mumbai, Malhotra noted that recent policy measures, including the expansion of the scope of Foreign Portfolio Investment (FPI), are expected to support capital inflows and strengthen the external sector.

Measures to Support Capital Flows

He said, “Going forward, we have expanded the scope of various sectors for FPI--for example, insurance--that could help. We have also taken a number of measures; we are now trying to simplify the rules and regulations governing FPI around these service, scheme-like rules,” as quoted by ANI.

Malhotra also clarified that recent FPI outflows are largely driven by global market dynamics and relative asset valuations rather than any underlying weakness in India’s economic fundamentals.

“FPI, too, is more about expectations. FPI outflows which are being witnessed, again, are not because of any underlying structural reason, but because of relative valuations,” he noted.

Macroeconomic Indicators Remain Robust

Highlighting domestic strengths, the governor said key indicators suggest macroeconomic stability, noting improved export performance and a narrowing trade deficit, with the external sector remaining comfortable.

“I think the fundamentals of the economy are very strong...Even if you look at not only the capital side, despite these concerns, we have a CAD surplus... exports have improved and trade deficits have come down,” Malhotra added.

He noted that early indicators for the first quarter show encouraging economic performance, reinforcing confidence in the growth outlook.

Other Regulatory and Operational Updates

Malhotra said plastic currency notes are currently under testing and could be introduced at the start of the next financial year, with details on security features to be announced later.

He also raised concerns over the practice of ‘window dressing’ by banks to temporarily inflate balance sheets at reporting periods. The RBI has directed lenders to strictly adhere to regulatory norms, noting that such practices do not provide any real financial benefit.

(KNN Bureau)