RBI Flags External Risks, Says Crude Oil And Financial Conditions May Pressure India’s Outlook

Mumbai: The Reserve Bank of India (RBI), in its May Bulletin released on Friday, said India’s economy continues to remain strong despite growing global uncertainties linked to the conflict in West Asia.

According to the article on the 'State of the Economy', domestic demand remains the biggest support for economic growth. Industrial activity and the services sector continued to perform well in April across several segments, showing resilience in the economy.

The report also highlighted positive trends in agriculture. Summer crop sowing has progressed smoothly due to above-normal pre-monsoon rainfall and comfortable water levels in reservoirs. This is expected to support farm output in the coming months.

Inflation Still Under Watch

The RBI article noted that retail inflation, measured by the Consumer Price Index (CPI), increased to 3.5% in April. The rise was mainly driven by higher food prices, while core inflation remained stable.

Although inflation is still within the RBI’s comfort range, the central bank said supply-side pressures need close monitoring. Rising global commodity prices and disruptions caused by geopolitical tensions may impact domestic prices going forward.

West Asia Conflict Creates Global Uncertainty

The RBI said the ongoing conflict in West Asia continues to affect commodity markets, supply chains and global trade flows. These developments have also increased volatility in global financial markets.

The article warned that financial conditions, crude oil prices and capital flows remain major challenges for India’s external sector outlook. Higher oil prices can increase India’s import bill and pressure the trade balance.

India Better Positioned To Handle Risks

Despite the risks, the RBI said India has entered this uncertain phase from a position of macroeconomic strength. Strong services exports, positive foreign direct investment (FDI) inflows and large foreign exchange reserves are expected to provide stability.

The report also mentioned that several proactive measures taken by the government and the RBI could help cushion the economy against external shocks.

However, the central bank clarified that the views expressed in the article are those of the authors and not the official views of the RBI.