India Resilient To Global Shocks, Iran Crisis Needs Vigilance: RBI

The Reserve Bank of India (RBI) has flagged rising risks from the ongoing Iran conflict, warning that proactive steps may be needed to limit its impact on the Indian economy, given the country’s dependence on crude oil imports.

In its March State of the Economy report, the RBI said the situation requires close monitoring even as it highlighted that India’s foreign exchange reserves as of 13 March, at $709 billion, remain adequate to cushion external shocks.

But with global volatility rising again, what risks is the central bank watching most closely?

Why Is the RBI Concerned About Spillovers?

The main concern comes from India’s dependence on crude oil.

The conflict has started to affect key energy routes, including the Strait of Hormuz. That has pushed crude prices higher and made supply conditions uncertain.

For India, the impact shows up in a few ways.

A rise in oil prices can push up the import bill. Costlier fuel also feeds into inflation over time. At the same time, higher demand for dollars can put pressure on the rupee.

The RBI also noted that global volatility, which had eased for a few months, has started to pick up again in recent weeks. Trade tensions have also returned, adding to uncertainty.

Financial markets have already reacted. Commodity prices have been volatile, and investors have turned cautious.

In such conditions, external shocks can pass through quickly to domestic markets. This is why the RBI has stressed the need for early and proactive steps.

How Strong Is India’s Cushion Against External Shocks?

Despite the risks, the RBI has highlighted that India has built a strong buffer.

Foreign exchange reserves stood at $709 billion as of 13 March, after touching a record $729 billion in February.

These reserves offer significant cover:

• Around 11.2 months of goods imports.

• Nearly 95% of external debt.

This gives the central bank room to manage volatility if needed.

The RBI has already been active in currency markets. The rupee, which has weakened 8.7% this financial year and about 2.9% since the conflict began, closed at 93.97 against the US dollar on Monday. Dollar sales by the central bank are seen as helping prevent sharper swings.

On the policy side, the government has also proposed an Economic Stabilisation Fund of ₹573 billion to handle unexpected shocks and supply disruptions.

These steps show that both policy support and financial buffers are being used to manage the situation.

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What Steps Are Being Taken On Energy And Growth?

India has been gradually widening its crude sourcing base. At the same time, refining capacity within the country has gone up, which helps handle supply gaps better.

Since the conflict began, measures have been taken to manage fuel supply disruptions and make better use of available domestic capacity.

Indicators for February, such as fuel use, trade movement and logistics activity, showed some improvement.

That said, the global backdrop is still changing. Uncertainty picked up again in February after easing for a few months, driven by trade-related concerns and geopolitical tensions.

The RBI’s view is that the economy is in a stronger position today, but global risks have not gone away. Close tracking and timely action will remain important.

Sources:

ET

Firstpost

Reuters