War casts shadow on economy: RBI
Durable start of capex cycle still elusive
The Reserve Bank of India (RBI) on Thursday said that the Indian economy is seeing a gradual but uneven strengthening recovery in the first quarter of FY23, in spite of headwinds from the geopolitical situation. It pointed out that while corporate sales and profitability have risen, a durable commencement of the capex cycle remains elusive.
“In the Indian economy, high-frequency indicators point to a gradual but unevenly strengthening recovery in the first quarter of 2022-23, in spite of headwinds from the geopolitical situation, elevated commodity prices, especially of crude oil, and volatile financial conditions, as global spillovers endeavour to unsettle domestic financial markets with bouts of turbulence. While corporate sales and profitability have risen, a durable commencement of the capex cycle remains elusive,” said the central bank in its 25th issue of the Financial Stability Report released on Thursday.
The FSR reflects the assessment of the sub-committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system.
The report said, “The Indian economy appears to have weathered the third wave of the pandemic associated with the Omicron variant, although the war
in Ukraine is now casting a long shadow on the outlook. While the end-May 2022 data release of the National Statistical Office (NSO) points to real GDP and major supply side categories in 2021-22 exceeding their pre-pandemic 2019-20 levels, high-frequency indicators present a mix picture.”
The report said that market risks are rising as spells of volatility are unleashed by foreign portfolio investment outflows and the sharp appreciation of the US dollar.
The central bank said that the outlook for the global economy is shrouded by considerable uncertainty because of the war in Europe, front-loaded monetary policy normalisation by central banks in response to persistently high inflation and multiple waves of the Covid-19 pandemic. Notwithstanding the challenges from global spillovers, the Indian economy remains on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring, the RBI warned.
However, banks as well as non-banking financial institutions have sufficient capital buffers to withstand shocks. The macro stress tests for credit risk reveal that scheduled commercial banks would be able to comply with the minimum capital requirements even under severe stress scenarios. The capital to risk weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new high of 16.7 per cent, while their gross NPA ratio fell to a six-year low of 5.9 per cent in March 2022.