With foreign exchange (FX) reserves of $677 billion, India is well placed to deal with the full impact of war [in Ukraine] or any challenges related to financing the current account deficit (CAD), Reserve Bank of India (RBI) Governor Shaktikanta Das said on Monday.
“The economy is in better shape today,” Mr. Das said in an address to the Confederation of Indian Industry (CII) National Council meeting in Mumbai. “We are better positioned in the external sector, but we live in an uncertain world. So there is no reason for complacency. We have to be vigilant and monitor very closely,” he added.
The RBI governor said India has foreign exchange reserves of $622 billion, according to the latest data, while another $55 billion is about to come from futures markets.
Mr Das claimed that India is better positioned than European economies against a backdrop of war, saying that high-frequency indicators are broadly in the green and that, in contrast to the 2013 taper tantrum leading up to the current crisis, the country’s CAD is “very low ‘ and foreign exchange reserves ‘very high’. “Over the past three years, our foreign exchange reserves have increased by $270 billion,” he said.
He stressed that India is monitoring crude oil and commodity prices and volatility very closely and expressed hope that inflation would not rise above 6% in FY23.
“I emphatically say that while we remain vigilant and monitor all trends, we are committed and confident to deal with any situation and challenge that may arise,” he emphasized. “That is the level of commitment and trust that exists within RBI and as in the past, we can continue to do so in the future,” he added.
Asked if there was a risk of stagflation, Mr Das claimed India had no such prospect. “The RBI and the Monetary Policy Committee (MPC) see no fear of stagflation in India,” Mr Das said.
He said Indian banks are better positioned than in the past despite the COVID crisis. While their gross NPA level hit an all-time low of 6.5%, the system-wide capital adequacy ratio was 16% and the reserve coverage ratio was 69%.
He said that in the current circumstances, the RBI has gone beyond the rule book to support growth and recovery.
“RBI has continued to support growth over the past two years and we have resisted expectations and temptations to reverse our monetary policy and move away from an accommodative stance,” he added.
Acknowledging the prevailing global uncertainties and also that RBI’s primary responsibility was to maintain price stability, Mr Das said that while the current crisis in Europe could have an impact on inflation in India, the possibility of a prolonged breach of the specified tolerance band was removed.
Regarding the exchange rate, he explained that RBI’s policy is to only intervene to address excessive volatility. The Indian rupee had depreciated just 0.4% this fiscal year to March 17 and given its reserves, the RBI was confident the exchange rate would remain stable. He also assured the Assembly of Industrialists sufficient liquidity to meet the economy’s borrowing needs.