RBI sees spillover effect of global crisis

Mumbai: Notwithstanding the geopolitical crisis created by the ongoing Russia-Ukraine conflict, India is making steady progress as it recovers from the third wave of pandemic though downside risks remain, the Reserve Bank of India (RBI) said.

Observing that India's macroeconomic fundamentals remain strong, the article in the RBI Bulletin on 'State of the Economy' said, "unfolding global developments nevertheless pose downside risks in terms of spillovers." It further said that the ongoing geopolitical crisis has heightened the uncertainty clouding the global macroeconomic and financial landscape even as the world economy struggles to recover from the pandemic. Spiralling oil and gas prices and unsettled financial market conditions pose fresh headwinds to the still incomplete global recovery, it said, adding "amidst these testing times, India is making steady progress on the domestic front as it recovers from the third wave." The Reserve Bank said the views expressed in the article are those of the authors and do not necessarily represent the views of the Central Bank. The article authored by RBI officials noted that the global economy is facing formidable headwinds from the conflict in Ukraine. Oil prices had touched multi-year highs, financial markets are on edge, driven by mass buying into safe-haven assets, particularly gold.

"Amidst such turbulence, the global growth outlook is worsening with intensified inflation and financial instability risks," it said. "In the absence of an early solution to the ongoing conflict, the crisis can have adverse implications for the global recovery, necessitating downward revisions of global growth for 2022 and beyond," the article said. Inflation continued to rise across economies, with cost-push pressures intensifying in the backdrop of clogged supply chains, high energy, food and commodity prices and seeping wage pressures, it said.

On the domestic front, the article noted that services sector outlets such as restaurants and cinema halls are gradually resuming normal operations, and mobility indicators show significant improvement in March 2022, compared to a year ago. "With the improvement in mobility and opening up of services sector outlets, electricity generation picked up in March, exceeding the levels of the preceding month and also pre-pandemic levels," it said.

Also, the generation of E-way bills remained above pre-pandemic levels. Toll collections also rose in February 2022, despite the waning of base effect. The article further said the resumption in mobility spurred diesel and petrol consumption in February 2022, although a dip in Aviation Turbine Fuel (ATF) dampened total petroleum consumption. Retail sales of automobiles continued to stagnate, with high delivery times impeding registrations.