Reserve Bank of India (RBI) Governor Sanjay Malhotra has recently addressed India's economic outlook amidst global uncertainties, particularly concerning tariffs. Speaking at the IMF annual meetings, Malhotra conveyed confidence in India's robust macroeconomic fundamentals and its capacity to withstand external shocks. While acknowledging the potential impact of tariffs, he asserted they are "not a matter of huge concern" for India, whose economy is primarily driven by domestic factors.
Malhotra highlighted several positive indicators, including increasing capacity utilization and improving investment sentiment. He pointed out that India's markets possess significant depth, and the country has demonstrated resilience in managing inflation, reducing it from a peak of 8% to around 1.5%, which he noted is the lowest in 8 years. Despite these positive trends, the Governor recognized the existence of "unprecedented uncertainties" stemming from various global factors, including policy uncertainties, which pose challenges for emerging market economies.
The RBI projects a growth rate of 6.8% for the current fiscal year, factoring in the prevailing tariff levels. Malhotra suggested that an early resolution to tariff-related issues would further boost India's economic growth. He also noted that while business and household expenditures are currently being delayed due to uncertainties, capacity utilization and investment sentiment are on an upward trajectory.
During the Monetary Policy Committee (MPC) meeting, members acknowledged the potential headwinds for MSMEs and export-driven sectors arising from recent US tariff actions, including steep duties on Indian goods and visa fee hikes. Despite these concerns, the MPC recognized the resilience of the Indian economy, supported by a strong monsoon, buoyant services, and improving manufacturing indicators.
While the benign inflation outlook has opened up room for a potential repo rate cut, Governor Malhotra expressed that the timing is not yet opportune for such a move, as it may not produce the desired results amidst the evolving trade-related uncertainties. He emphasized the need for prudence, stating that the full impact of prior fiscal and monetary measures is still unfolding.
Finance Minister Nirmala Sitharaman has echoed the RBI's positive sentiment, pledging record infrastructure spending to further fuel economic growth. The RBI's stance reflects a delicate balancing act, aiming to support growth while remaining cautious in the face of a foggy global landscape. The central bank emphasizes taking a measured approach to policy decisions, carefully assessing macroeconomic conditions and outlook.
