With foreign exchange reserves (forex) of $677 billion, India is comfortably placed to withstand any effect of war [in Ukraine] or any challenges related to the financing of the current account deficit (CAD), Shaktikanta Das, governor of the Reserve Bank of India (RBI), said Monday.
“The economy is in better shape today,” Mr Das said in a speech to the National Council meeting of the Confederation of Indian Industry (CII) 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 must be vigilant and monitor closely,” he added.
The RBI governor said, according to the latest data, that India had $622 billion in forex reserves, with another $55 billion coming soon from the futures markets.
Mr Das claimed India was better placed than European economies against the backdrop of the war, saying that high-frequency indicators were generally in the green and that, unlike the 2013 taper tantrum, in the run-up to the current crisis the country’s CAD was “very low” and forex reserves were “very high”. “Over the past three years, our forex reserves have increased by $270 billion,” he said.
He stressed that India was closely monitoring crude oil and commodity prices and volatility, and expressed hope that inflation would not rise above 6% in FY23.
“I say emphatically that while we are vigilant and follow all trends, we are committed and confident in dealing with any emerging situation and dealing with any new challenges,” he emphasized. “That’s the level of dedication and confidence there is in the RBI and just like in the past we can do it in the future,” he added.
When asked whether there was a risk of stagflation, Mr Das claimed India faced no such prospect. “The RBI and the Monetary Policy Committee (MPC) see no fear of stagflation in India,” Das said.
He said that despite the COVID crisis, Indian banks were better placed than in the past. While their gross NPA level hit an all-time low of 6.5%, the system-wide solvency ratio was 16% and the facility coverage ratio was 69%.
He said the RBI had gone beyond the rulebook in the current circumstances to support growth and recovery.
“The RBI has continued to support growth over the past two years and we have resisted the expectations and temptations to reverse our monetary policy and move away from an accommodative stance,” he added.
Acknowledging the prevailing global uncertainties as well as the fact that the RBI’s primary responsibility has been 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 violation of the established tolerance band was remote.
On the exchange rate, he stated that the policy of the RBI has been to intervene only to deal with excessive volatility. The Indian rupee had depreciated only 0.4% this fiscal year to March 17 and given its reserves, RBI was confident in exchange rate stability. He also ensured the pooling of industrialists of sufficient liquidity to meet the credit needs of the economy.