West Asia Tensions And Uncertain Monsoon Threaten Growth: RBI Governor

New Delhi, Jul 18 (KNN) Reserve Bank of India (RBI) Governor Sanjay Malhotra has flagged geopolitical tensions in West Asia and the possibility of a weak monsoon as key risks to India’s economic growth outlook.

In an interview with DD news, Malhotra said, “Despite global uncertainties, India has witnessed an over 7 per cent growth rate in the past few years. Last financial year, India clocked a growth rate of 7.7 per cent supported by strong and robust macroeconomic fundamentals,” PTI reported.

The RBI has projected GDP growth at 6.6 per cent for the current financial year, even amid global and domestic challenges. He emphasised that stable monetary and fiscal policies continue to underpin this performance.

Inflation Outlook Revised Upward

The central bank has revised its inflation forecast to 5.1 per cent for FY27, up from an earlier estimate of 4.6 per cent. 

Retail inflation rose to 4.38 per cent in June from 3.93 per cent in May, driven largely by higher food prices. Food inflation increased to 5.32 per cent during the same period. 

The RBI governor attributed the recent rise in inflation above the RBI’s 4 per cent target to supply-side pressures.

Monsoon a Key Domestic Risk

Highlighting agriculture’s importance, he said monsoon performance remains critical, as the sector contributes around 17 per cent to GDP and supports a large share of the population. He stressed the need for close monitoring of rainfall patterns.

Rupee Stable Amid Global Volatility

On the currency front, Malhotra said the Indian rupee has remained relatively stable compared to global peers despite a stronger US dollar and heightened uncertainty following tensions in West Asia. He noted that several global currencies have weakened, while India’s position remains broadly stable.

External Sector and Investment Outlook

The governor pointed out that India recorded a record gross foreign direct investment (FDI) of about USD 95 billion last year, with net FDI of around USD 7 billion in the first two months of the current financial year. He expressed confidence that the country’s external sector and balance of payments will remain strong over the medium to long term.

Credit Growth and AI Adoption

Bank credit growth remained robust and broad-based, rising to around 18 per cent year-on-year in June. Malhotra also encouraged banks to adopt advanced technologies such as artificial intelligence (AI) to improve efficiency, customer service, and decision-making, while ensuring safeguards against cybersecurity risks and data misuse.

Balancing Inflation and Growth

Reaffirming the RBI’s policy stance, the RBI governor said controlling inflation remains the central bank’s primary objective under its flexible inflation-targeting framework, while supporting growth is a complementary goal. He emphasised that low and stable inflation is essential for sustaining long-term economic growth.

(KNN Bureau)